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DECEMBER 2004
High Court to Decide If Takings Claimants Can Get "Second
Bite" in Federal Court
San Remo Hotel v. San Francisco (U.S. No. 04-340)
On December 10, the U.S. Supreme Court turned an already
significant takings term into a potential blockbuster by agreeing
to hear San Remo Hotel v. San Francisco. The case raises
the issue of whether takings claimants are entitled to a second
bite at the apple in federal court on the same factual and
legal issues they lost on in state court.
Now in its 11th year of litigation, San Remo is a
takings challenge to a San Francisco ordinance designed to
alleviate the city's severe affordable housing shortage by
restricting the conversion of "residential hotels"
to tourist use. Hotel operators converting rooms to tourist
use are required to pay a mitigation fee to the city to help
fund replacement units. San Remo first filed in federal court,
but then asked the court to abstain from the case and voluntarily
proceeded to state court. When it litigated its state law
takings claim in state court, it expressly "reserved"
its federal takings claim for future litigation. The state
court case ended in 2001 when the California Supreme Court
upheld the ordinance and broadly affirmed the right of governments
to impose legislative impact fees.
San Remo then refiled in federal court to pursue a federal
takings claim. The federal district court rejected the federal
claim on grounds of issue preclusion. On appeal, the Ninth
Circuit held that while a litigant may use a reservation to
protect against claim preclusion, issue preclusion remains
a bar to relitigating in federal court the specific issues
already decided in state court. Because the California state
courts already decided the factual and legal issues that governed
San Remo's federal takings claim, issue preclusion barred
relitigation. The court's decision was a strong rebuttal to
the notion that taking claimants deserve a second bite at
the apple in federal court.
Under the Full Faith and Credit Act, one of the oldest provisions
in the federal code, federal courts are required to give the
same preclusive effect to a state court judgment as another
state would give. As the Court held in Allen v. McCurry,
449 U.S. 90 (1980), federal claimants do not possess an unencumbered
right to litigate their claims in federal court. If the Supreme
Court follows past precedent, issue preclusion should prevent
San Remo from challenging the state judgment in federal court.
The San Remo case harkens back to the federal legislation
pushed by the developers' lobby that attempted to repeal the
Williamson County requirement that claimants
challenging state or local action first seek relief in state
court before bringing a takings claim in federal court. Although
these developer-supported bills failed to win passage in two
successive Congresses in the wake of strong opposition from
state and local governments, the developers' lobby is pushing
cases like San Remo to advance a similar agenda in
the courts.
NOVEMBER 2004
Listening to the States in Shaping "Our Federalism"
In January, CRC announced its expanded focus on a broader
range of constitutional threats to health, safety, and environmental
safeguards. As Community Rights Report readers now
know, CRC is no longer only about takings. We also assist
in defending against preemption challenges to state and local
protections, as well as challenges under the Commerce Clause
to federal protections that provide minimum safeguards for
all communities. Now we're delighted to announce a new book
co-authored by CRC, Redefining Federalism: Listening to
the States in Shaping "Our Federalism," published
this month by the Environmental Law Institute, which explains
the unifying vision behind this expanded focus.
The book provides the first comprehensive analysis of the
briefs filed by state attorneys general in federalism cases
over the past decade. These briefs tell a compelling story
about what the States believe federalism is, and is not. The
Supreme Court, according to the States, is protecting federalism
too much and too little. Too much, by striking down federal
law where even the States recognize that a federal role is
necessary to address a national problem, and too little, by
inappropriately limiting state experimentation.
For example, in United States v. Morrison, (U.S. 2000),
the Court struck down important portions of the federal Violence
Against Women Act over the strong objections of 36 state attorneys
general, leading Justice Souter to quip in dissent that it
is "not the least irony of these cases that the States
will be forced to enjoy the new federalism whether they want
it or not."
The States have also been clamoring for the Court to reconsider
its standard for determining when a federal law preempts state
and local governments from legislating on the same subject.
The States have asked the Court to find preemption only when
Congress says explicitly that it wants to eliminate state
policymaking. The Court has often turned a deaf ear to these
requests.
In sum, the States are asking the Supreme Court to redefine
federalism. Federalism as explained by the States is not a
zero sum game in which every expansion of the national government's
power is an intrusion into the power of the States. Federalism
instead is about allocating government power in a manner that
improves the way government serves its citizens.
If federalism is about protecting the States, the Court should
listen to them. Redefining Federalism can be ordered
at www.eli.org.
OCTOBER 2004
Eminent Domain, Imminent Decision
The U.S. Supreme Court has agreed to revisit the issue of
eminent domain, granting cert. in Kelo v. City of New London,
No. 04-108. A ruling against New London could dramatically
curtail the ability of local governments to revitalize distressed
cities.
The Fifth Amendment allows a government to compel a reluctant
landowner to sell private property, but only for "public
use." Common public uses include roads, parks, schools,
and blight clearance. Some governments have used the power
more broadly, however, and the Supreme Court has previously
allowed non-blighted property to be condemned and transferred
to another private owner if a state or local legislature reasonably
deems that transfer to be for public use.
The Kelo case arose out of the dire economic condition
of New London, Connecticut in the late 1990s. The city's unemployment
rate was almost double that of the state, it had been losing
residents for three decades, a major employer had left the
town in 1996, and the local tax base was anemic. When the
Pfizer corporation decided to locate a major facility in New
London, local officials planned to turn an adjacent waterfront
neighborhood into a site for a hotel, health club, condominiums,
office towers, parking facilities, and a public river walk
that it hoped would create jobs, generate more tax revenues,
energize the city economically, and encourage New Londoners
to enjoy the river as a public amenity.
The city sought to condemn homes in the Fort Trumbull neighborhood
to clear the way for this new project. A handful of the affected
homeowners objected, saying that a greatly increased tax base
and more than a thousand new jobs were insufficient to clear
the Constitution's public use hurdle. The Connecticut Supreme
Court sided with New London, 843 A.2d 500 (Conn. 2004), and
the homeowners petitioned the U.S. Supreme Court for review.
Eminent domain has played a crucial role in major waterfront
redevelopments, ballpark construction plans, and neighborhood
revitalization. If the Court backtracks on the scope of eminent
domain, state and local officials will lose a key economic
development tool. Worse, residents of many distressed cities
will be less likely to enjoy the benefits-like new jobs, better
services, and more amenities-that arise out of the careful,
intelligent use of eminent domain. Expect a decision next
spring.
SEPTEMBER 2004
Dormant Commerce Clause Ruling Topples Tax Incentives
Tax Credits Unconstitutional, but Tax Exemptions Okay in Sixth
Circuit
Justice Scalia has called the Court's jurisprudence under
the dormant Commerce Clause a "quagmire." His point
is illustrated well by the Sixth Circuit's recent ruling in
Cuno v. DaimlerChrysler, Inc., 2004 Fed. App. 0293P
(6th Cir.). In Cuno, the court overturned the state
of Ohio's investment tax credit, which protected Ohio jobs
by giving companies that installed new machinery in their
Ohio operations a credit against the state's corporate franchise
tax. The court held that the tax credit violated the dormant
Commerce Clause by discriminating against out-of-state commerce.
But the court upheld the state's personal property tax exemption,
which applies to companies that create or expand facilities
in distressed areas in the state. Yet this exemption would
also seem to discriminate against interstate commerce since
it too applies only to investment in Ohio.
Ohio's investment tax credit was designed to encourage unusually
expensive capital investments in its communities. The Sixth
Circuit found that this tax credit looked like other tax schemes
that the Supreme Court has invalidated in the past. The Sixth
Circuit ruled that not extending the tax credit to out-of-state
equipment installations was tantamount to discrimination against
interstate commerce.
However, the court upheld Ohio's personal property tax exemption
scheme, which allows municipalities to waive personal property
taxes for companies that invest in Ohio's enterprise zones
and maintain their level of employment there. The court explained
that the tax exemption "contains no restriction on the
individuals employed or served," meaning, presumably,
that if Kentucky residents were employed in and Michigan residents
shopped in these depressed areas (which seems unlikely), the
Ohio investors received the exemption anyway.
To the Sixth Circuit, the difference between a tax credit
and tax exemption was crucial. "Unlike an investment
tax credit that reduces pre-existing income tax liability,
the personal property exemption … merely allows a taxpayer
to avoid tax liability for new personal property put into
first use in conjunction with a qualified new investment."
The court concluded that, in the case of exemptions, "businesses
that desire to expand are neither discriminated against nor
pressured into investing in Ohio," and thus found no
dormant Commerce Clause violation. But is the difference really
that clear? If a business can get a 100 percent personal property
tax exemption in an Ohio enterprise zone, but no exemption
in, say, Illinois, won't that business be more likely to locate
in the Ohio enterprise zone? How, exactly, is this situation
different from the disallowed corporate franchise tax credit,
which also sought to encourage investment in Ohio rather than
Illinois or elsewhere?
These fine distinctions between tax credits and tax exemptions
make it hard for state and local officials to craft future
tax policies. Until the Supreme Court clarifies its dormant
Commerce Clause jurisprudence, expect this judicial hair-splitting
to continue.
AUGUST 2004
Federal Statutes as Background Principles
One key question raised by the 1992 Lucas ruling is
whether the "background principles" that immunize
government officials from takings liability include federal
law (not just state law) and statutes (not just common law).
Some in the so-called property rights movement have insisted
that the background principles defense is limited to state
common law. Others have argued that the defense is broader
and may encompass statutes and federal law in appropriate
circumstances.
The Federal Circuit applied the broader view in American
Pelagic Fishing Co. v. United States, No. 03-5101 (Fed.
Cir. Aug. 16, 2004), overturning a $37 million takings verdict
handed down by the U.S. Court of Federal Claims. American
Pelagic alleged that riders to appropriations bills worked
a taking because they cancelled its federal permits to fish
for mackerel and herring in the "Exclusive Economic Zone"
(EEZ) in the Atlantic Ocean, which extends 200 nautical miles
from the U.S. coast.
The appeals court made short work of the claimant's allegation
that the riders effected a taking of the fishing permits themselves,
ruling that no one can possess a property right in these permits
because the government retains the right to revoke them. Turning
to American Pelagic's main contention - that the riders took
the use of the vessel for fishing in the EEZ - the court stated
that the issue reduced to whether the right to fish in the
EEZ is "a legally cognizable property interest such that
it was a stick in the bundle of property rights that American
Pelagic acquired" when it purchased the vessel. American
Pelagic argued that it was, because the use of the vessel
to fish was allowed not only under traditional property and
nuisance law, but also the federal regulatory regime under
which the permits were issued.
The Federal Circuit disagreed. The court first reaffirmed
the important principle set forth in Lucas that owners
of personal property have less of an expectation to be free
from regulation than landowners, in view of the high degree
of government control over commercial dealings involving personal
property. It then concluded that background principles of
federal law prevented American Pelagic from acquiring the
right to fish in the EEZ when it bought the vessel. Specifically,
it ruled that through the 1976 Magnuson Act, a 1983 proclamation
by President Reagan, and 1986 amendments to the Act, the United
States asserted sovereignty over the natural resources of
the EEZ. Because these laws were in place when American Pelagic
purchased its vessel, the court concluded that they served
as background principles that inhered in the vessel's title
and precluded takings liability for any subsequent restriction
on EEZ fishing.
Congrats to U.S. DOJ, the Maine Attorney General's Office,
which filed an amicus brief on behalf of several States, and
our friends at the Georgetown Environmental Law & Policy
Institute, which represented amici Oceana and Ocean
Conservancy.
JULY 2004
Federal Circuit Renders Split Decision In Salmonella Case
Rose Acre Farms, Inc. v. U.S., No. 03-5103 (Fed. Cir.
June 30, 2004)
The good news is that on June 30, the Federal Circuit reversed
a dreadful ruling by the U.S. Court of Federal Claims, which
had held that federal efforts to address salmonella poisoning
had worked a taking. The bad news is that the appeals court's
ruling is a total hodgepodge that muddies the water on whether
loss of profits is an appropriate measure of a taking under
Penn Central.
The key issue raised by the Rose Acre case is whether
taxpayers must compensate Rose Acre Farms for food safety
protections imposed after three Salmonella outbreaks traced
back to its eggs caused nearly 500 people to become ill and
150 people to be hospitalized. The U.S. Department of Agriculture
temporarily banned Rose Acre from selling eggs from Salmonella-contaminated
hen houses as table eggs, but it still permitted those eggs
to be sold in the less lucrative breaker market (e.g., for
cake mix) because the pasteurization process used on breaker
eggs kills the deadly bacteria.
The trial court ruled a taking of the eggs occurred based
on a value loss ranging from 10-25% (depending on parcel definition),
contravening decades of established precedent showing that
government action must work a severe value loss, typically
in excess of 90%, to constitute a taking. Just as disturbing,
the trial court based its holding in part on its second-guessing
of the wisdom of the challenged government restrictions, which
the trial judge deemed "misguided," even though
Rose Acre had lost a challenge to those restrictions in the
Seventh Circuit, where it argued unsuccessfully that the government
response was arbitrary.
On appeal, the Federal Circuit held that the lower court's
analysis of Penn Central's economic impact prong failed
to gauge the specific impact of the regulations on Rose Acre.
The appeals court also ruled that the trial court improperly
concluded that the regulations were misguided. The Federal
Circuit also rejected the trial court's conclusion that the
killing and testing of various Rose Acre hens worked a per
se taking.
In a troubling portion of the analysis, however, the Federal
Circuit held that on remand, the trial court must decide whether
loss of profit is a more appropriate measure of the takings
claim than loss of value. The court disregarded the obvious
fact that using lost profits as a benchmark for takings liability
would reward inefficient, marginal firms that were operating
just above the breakeven point prior to the challenged government
action. Amazingly, the court's bizarre calculations suggest
that going from a $1 profit to a $5 loss would constitute
a 600% loss in profits, while dropping from a $12 profit to
a $6 profit (the same $6 loss in absolute terms) would constitute
just a 50% loss. The court also ignored the absence of any
guidance in 80+ years of regulatory takings jurisprudence
on how a court should evaluate a loss in profits as compared
to a lesser loss in value. We are hopeful the trial court
will ultimately apply the well-accepted value loss approach
on remand.
Community Rights Counsel filed an amicus brief with the Federal
Circuit in the case on behalf of several public health and
consumer groups.
JUNE 2004
Under Odd Parcel Definition, City Quarry Ban Might Work
a Taking
Vulcan Materials Co. v. City of Tehuacana, 369
F.3d 882 (5th Cir. May 21, 2004)
In an unusual decision, the Fifth Circuit reversed a district
court opinion to hold that an ordinance banning limestone
quarries within city limits would work a categorical taking
under the Texas Constitution, unless the quarrying is deemed
to be a nuisance. The ruling is especially disturbing because
the ban applies only to 48 of the claimant's 298-acre parcel.
The City of Tehuacana, Texas boasts a population of just
over 300. It passed an ordinance in 1998 that forbids certain
mining activities within city limits due to property damage,
dust, smoke, and loss of springs and water wells caused by
quarry blasting. Vulcan Materials held mineral leases on 48
acres within the city limits and on an additional 250 acres
of adjacent land beyond the city's borders unaffected by the
law. On motion for summary judgment, the district court rejected
Vulcan's multi-million dollar takings challenge to the restrictions
on its 48 acres because it held the activities constitute
a nuisance under Texas law and Vulcan did not suffer a complete
loss of value. The court noted that Vulcan owned other property
and could still theoretically extract limestone from the tract
without blasting, although such means were more labor intensive
and expensive.
Rejecting this analysis, the Fifth Circuit attempted to determine
how the Texas Supreme Court would rule and held that property
beyond the reach of the regulating body's jurisdiction should
not be considered part of the relevant parcel. Defining the
relevant parcel as only the 48 acres within the city limits,
the court found that the ordinance effectively prohibits all
mining on the parcel and held that it would work a categorical
taking of Vulcan's mineral rights unless the mining was a
nuisance. The court remanded to the district court for a trial
on whether quarrying within city limits could be considered
a nuisance.
Because the court makes numerous "Erie guesses"
as to what the Texas Supreme Court would hold, the Fifth Circuit
noted that its ruling "is likely to have limited precedential
value." Nonetheless, the court's segmentation analysis
is troubling, and it will be interesting to see how the background
principles question is ultimately resolved.
MAY 2004
Town of Flower Mound v. Stafford Estates Ltd. P'ship,
2004 WL 1048331 (Tex., May 7, 2004)
The Texas Supreme Court dealt municipalities in the state
a setback this month when it affirmed a lower court decision
holding that a development condition worked a taking under
the Texas Constitution. In so doing, the court ruled that
the Nollan/Dolan essential nexus and rough proportionality
tests extend to conditions outside the context of dedicatory
exactions.
The Town of Flower Mound requires that subdivision developers
improve abutting streets that fall below current road standards.
Accordingly, the town required Stafford Estates to rebuild
an abutting road as a condition of receiving approval to construct
a new subdivision. Stafford reconstructed the road and sued
for a taking.
Although Del Monte Dunes and most state court decisions
appear to limit rough proportionality analysis to compelled
dedications of land, the court rejected the Town's argument
that the Nollan/Dolan test is inapposite to other kinds
of exactions. "In neither Dolan nor Del Monte
Dunes did the Supreme Court have reason to differentiate
between dedicatory and non-dedicatory exactions," the
court concluded. Relying heavily on the California case Ehrlich
v. City of Culver City, the court reasoned that the development
condition at issue was more like a dedication than a mere
restriction on the use of property and that therefore the
Nollan/Dolan test should apply.
The court also parted company with the majority of state
courts, which have limited application of the Dolan
standard to adjudicative determinations. While the court did
"not decide what 'legislative' decisions are to be judged
by the Dolan standard," it concluded that "the condition
that the Town imposed on Stafford must be." Because the
road was in good shape at the time and the Town failed to
demonstrate a proportional relationship between the development
and the required improvements, the court affirmed the ruling
for the developer. Lastly, the court rejected Stafford's claim
for attorneys' fees under 42 U.S.C. § 1988, holding pursuant
to Williamson County that since adequate state remedies
were available, the company could not maintain a federal claim
that would entitle it to a fee award.
APRIL 2004
Ninth Circuit Rejects Takings Claim in San Remo
But Revives "Substantially Advance" Test in Chevron
San Remo Hotel L.P. v. San Francisco City & County,
2004 WL 785322 (9th Cir. April 14, 2004)
Chevron USA, Inc. v. Lingle, 2004 WL 720175 (9th Cir.
April 1, 2004)
Two rulings from the Ninth Circuit this month are a decidedly
mixed bag. Two weeks ago, the court gave San Francisco attorneys
a key victory in their long-running battle to defend the city's
hotel conversion ordinance against a takings challenge. But
just two weeks earlier, the court second-guessed government
officials by ruling 2-1 that a Hawaii rent-control statute
aimed at gas stations worked a taking because it did not substantially
advance the state's interest in reducing gas prices to consumers.
At issue in San Remo was whether the hotel could relitigate
a takings claim in federal court after a nearly identical
claim had already been raised and rejected in state court.
Although San Remo attempted to "reserve" its federal
claim in state court, the Ninth Circuit ruled that a litigant
could use a reservation to protect only against claim preclusion.
Issue preclusion remains a bar to relitigating in federal
court specific issues already decided in state court. The
court thus issued a strong rebuttal to the notion that claimants
deserve two bites at the takings apple. Kudos to San Francisco
attorney Andrew Schwartz for an excellent brief and argument.
CRC filed a supporting amicus brief on behalf of several municipal
groups.
The Chevron case addressed a Hawaii law that regulates
the maximum rent an oil company can charge its dealer stations.
Chevron alleged that the statute failed to substantially advance
a legitimate state interest, and a district court granted
summary judgment for the company in 1998. The Ninth Circuit
agreed with the standard but remanded for further factual
determinations. After the district court again ruled for Chevron
based on its finding that the legislation did not advance
the purpose of limiting gasoline prices in the state, Hawaii
argued (among other things) that the decision was contrary
to Eastern Enterprises, a case in which five justices
appeared to cast doubt on the viability of means-ends inquiries
under the Takings Clause. But the Ninth Circuit reaffirmed
its prior holding that the "substantially advance"
test calls for intermediate scrutiny and "requires a
'reasonable relationship' between a legitimate public purpose
and the means used to effect that purpose."
Chevron breathes new life into a test that courts have rarely
employed to find a taking outside the context of compelled
dedications of land. Given that seven Justices have joined
opinions in recent years raising questions about the validity
of the test, the issue calls out for clarification by the
U.S. Supreme Court.
MARCH 2004
Big Win in Texas Supreme Court: Clarity from the "Serbonian
Bog"
The Texas Supreme Court once described the state of regulatory
takings jurisprudence as "a sophistic Miltonian Serbonian
Bog" that could swallow up even the most careful navigator.
But earlier this month, in Sheffield Devel. Co. v. City
of Glenn Heights, No. 02-0033 (Tex., March 5, 2004), the
court identified some firm islands of clarity in the bog by
unanimously rejecting takings challenges to municipal downzoning
and a related twelve-month moratorium.
The case arose out of a 1998 decision by the City of Glenn
Heights, a small suburb south of Dallas, to rezone a 194-acre
tract from (roughly) 1/6-acre to 1/4-acre lots. Sheffield
challenged the rezoning and related moratorium as takings
under the Texas Constitution.
The trial court ruled that the downzoning worked a taking,
and a jury awarded Sheffield $485,000 plus interest, a potentially
devastating amount for Glenn Heights, whose population was
just 8,050 as of 2000. The trial court rejected the takings
challenge to the moratorium. An intermediate appeals court
affirmed the takings award for the downzoning, and also concluded
that the moratorium worked a taking and remanded for additional
compensation on that claim. In one of the most expansive readings
of a state Takings Clause ever rendered, the appeals court
ruled that a 38 percent loss in value could work a taking,
even though the land was still worth more than four times
what Sheffield had paid for it.
The Texas Supreme Court reversed both takings rulings. The
state high court concluded that the rezoning advanced the
government's legitimate interest in curbing the ill effects
of urbanization. The court then applied Penn Central's
multifactor test, assuming (based on the jury award) that
the rezoning reduced the value of the land by 50 percent.
While recognizing that this value loss is significant, the
court stressed that it is "more important" to the
takings analysis that the land was still worth four times
what Sheffield paid for it just a few years ago. The court
concluded that while certain aspects of the City's conduct
were "troubling," the City's decisions "were
not materially different from zoning decisions made by cities
everyday." Turning to the moratorium, the court asserted
that a municipality may not use delay merely to extract concessions,
but concluded that the moratorium here facilitated an orderly
process for resolving various disputes over zoning within
the city.
Kudos to Robert F. Brown of Brown & Hofmeister, LLP for
securing this victory for Glenn Heights. The court received
numerous amicus briefs in the case, including briefs CRC prepared
at the petition stage and on the merits on behalf of the Texas
Municipal League, Texas City Attorney Association, and International
Municipal Lawyers Association.
The opinion is available at: http://www.supreme.courts.state.tx.us/historical/2004/mar/020033.htm.
FEBRUARY 2004
Court Awards $14 Million in ESA Takings Case
Although habitat protection under the Endangered Species
Act has sparked much controversy over the years, landowners
alleging regulatory takings under the Act have met with little
success-until now. On December 31, the U.S. Court of Federal
Claims awarded water users in the Tulare Lake Basin of California
$14 million plus interest in a takings challenge to efforts
by state and federal officials to protect the winter-run chinook
salmon and delta smelt, two species of fish considered in
danger of extinction. Tulare Lake Basin Water Storage Dist.
v. United States, 2003 WL 23111365 (Fed. Cl. Dec. 31,
2003). The damage award follows the court's previous decision
finding a physical taking of the farmers' water rights, which
we discussed in our first issue of Takings Watch in
May 2001.
At the center of the litigation are two projects that transport
water from northern California for farm irrigation in the
southern portion of the state. Although the government did
not consumptively use the water at issue, but instead only
restricted the farmers' use, the court ruled that the government
had "seized" the water. The court thus sidestepped
a Penn Central analysis to find a physical taking, while also
rejecting arguments that several background principles of
state law, including the public trust and reasonable use doctrines,
that deprive the claimants of any right to use the public's
water in a way that injures wildlife.
The government has not yet decided to appeal the case, which
is the first significant decision holding that protections
under the Endangered Species Act constitute a taking. If the
decision stands, the government could also face up to $1 billion
in liability for a claim over similar water restrictions in
the Klamath Basin in Oregon and Northern California that were
aimed at maintaining lake levels for two endangered species
of sucker fish. "It does potentially set a very expensive
precedent for the federal government," University of
California Berkeley law professor Joseph Sax told the LA
Times. See http://www.redding.com/news/state/past/
20040129state065.shtml.
Expansion of the court's disturbing physical takings analysis
beyond the context of water rights could also have troubling
implications for workaday land-use protections. We plan to
file a brief next month in Stearns Co., Ltd. v. United
States, a similar CFC case holding that federal permitting
regulations worked a physical taking of a mining company's
right to mine in a National Forest.
JANUARY 2004
Aetna Health Inc. v. Davila (U.S. Nos. 02-1845
& 03-83)
When HMO cost-cutting is hazardous to your health, may state
legislatures and state courts do anything to protect you?
Juan Davila, a post-polio patient with diabetes and arthritis,
received Aetna HMO coverage through his employer's health
plan. To address his arthritis pain, his doctor prescribed
Vioxx, which has a lower rate of bleeding, ulceration, and
similar toxic effects than other pain relievers. But before
filling the prescription, Aetna required Davila to try two
different, cheaper medications. After three weeks, he was
rushed to the emergency room with bleeding ulcers, which caused
a near heart attack.
Ruby Calad underwent a complicated hysterectomy. Although
her doctor recommended a longer stay, CIGNA's hospital discharge
nurse decided that the standard, one-day hospital stay would
suffice. Calad suffered serious complications, which she attributes
to her early release.
Davila and Calad sued their HMOs for consequential damages
in state court under a Texas statute that allows patients
to challenge negligent medical decisions by HMOs. Aetna and
CIGNA argue that the state statute is preempted by ERISA,
the Employee Retirement Income Security Act, which does not
allow ERISA plan beneficiaries to recover consequential damages.
Worse still, they argue that the claims are not only preempted,
but "completely preempted," and that therefore the
cases should be removed from state court to federal court,
even though the complaints plead only state law claims.
There are few indignities greater for a state court than
to have a case snatched from its docket through complete preemption,
which negates any previous investment of resources and precludes
it from voicing any view whatsoever on the state law claims
or the propriety of removal. On January 22, Community Rights
Counsel submitted an amicus brief to the Supreme Court in
support of Davila and Calad, demonstrating that complete preemption
is improper here because the state-law claims are independent
from, and do not require application of, ERISA or any ERISA
plan. The brief is available at http://www.communityrights.org/PDFs/Briefs/Davila.pdf.
Oral argument will be held March 23, and a ruling is expected
before the Court's summer recess.
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