Supreme Court Faces Key Business Cases

ADA, Patents, Property Rights, and HMOs top list

2001 Volume 4 Issue 4

Five cases show potential impact of high court decisions on business.

When the Supreme Court returned for another term on the first Monday in October, it had already agreed to decide a number of disputes important to the business world. Cases dealing with employers’ duties under the Americans with Disabilities Act, the strength of patent protection, property rights for landowners and developers, and employees’ rights against their HMOs top the business agenda for the new term.

Americans with Disabilities Act Cases

The Supreme Court continues to struggle with interpretation of the Americans with Disabilities Act (ADA). This relatively new federal law, enacted a decade ago to require employers to make reasonable accommodations for persons with disabilities, has required frequent intervention by courts to define the law’s terms and scope.

The ADA case drawing the most attention in the 2000-01 Supreme Court term completed last June involved professional golfer Casey Martin’s request to use a golf cart in PGA tournaments to alleviate the effects of a leg condition. Although the court decided that Martin was protected under the ADA and thus entitled to a cart, the opinion was written narrowly enough as to have little or no effect in the general workplace.

But one case due for a decision this term could prove to be very significant in defining who is “disabled” and thus protected by the law. Two years ago, the court ruled that people with correctable conditions (such as bad eyesight requiring glasses) were not disabled and thus not entitled to protection under the ADA.

The statute’s definition of disability is “a physical or mental impairment that substantially limits one or more of the major life activities.” Of course, that definition itself raises more questions, including the meaning of terms such as “impairment,” “substantially limits,” and “major life activities.”

In essence, this term’s case asks just how disabled a person must be to qualify for ADA protection. If an employee is partially disabled – able to perform some jobs but not others – is that enough for the law to apply?

The case involves an automobile plant worker, Ella Williams, who developed carpal tunnel syndrome and tendinitis while working on an assembly line. Her employer, Toyota, initially moved Williams to a different job in the same plant, inspecting newly painted cars. Toyota allowed her to skip two of four specific tasks required of other employees in the same position, and Williams successfully worked in the inspection job for three years. But when Toyota required her to take on a third task normally performed in the inspection job, her carpal tunnel syndrome worsened and spread. Williams asked to be returned to the less demanding responsibilities, but Toyota declined.

The trial court ruled for Toyota, finding that she was not covered by the ADA. But the 6th U.S. Circuit Court of Appeals disagreed, finding that her inability to perform some manual tasks was enough to make her disabled.

There are several different, but related, questions that the Supreme Court might choose to address in deciding this appeal. One issue is whether a repetitive stress injury such as carpal tunnel syndrome is indeed a disability for purposes of the ADA.

Or, the court might choose to focus on the meaning of “substantially limits” – whether an employee’s inability to perform certain manual tasks is enough to qualify for ADA protection, even when the employee is clearly able to perform some other jobs. Finally, the court might address continuing uncertainty over whether “working” deserves to be treated as a “major life activity” for purposes of triggering ADA requirements.

Whichever approach the court ultimately uses, the ruling could prove to be pivotal to the threshold question of who is covered by the law. Thus, the court’s opinion is likely to be a crucial decision for employers seeking to comply with the ADA, and to employees seeking its protection.

A second ADA case before the court presents a narrower question, dealing with the ADA requirement that an employer “reasonably accommodate” a disabled employee unless such an accommodation would cause undue hardship. A California case against U.S. Air asks whether that duty to accommodate overrides conflicting provisions of a company’s voluntary seniority system.

Robert Barnett, a customer service agent for U.S. Air, hurt his back on the job while moving cargo. Unable to handle freight when he returned from disability leave, he was transferred to a mailroom position. Barnett relied on his seniority to request this transfer.

But then two employees with more seniority than Barnett also decided to seek transfers to the mailroom, meaning Barnett would be bumped back to the cargo area. Asking for reasonable accommodation under the ADA, Barnett sought to keep his mailroom job. U.S. Air rejected that request, as well as alternative accommodations proposed by Barnett.

Other courts have previously held that the ADA does not require a reasonable accommodation that would conflict with the company’s collective bargaining agreement. But would the same be true for a voluntary seniority system, such as the one used by U.S. Air? Which takes precedence – the ADA requirement, or the voluntary seniority system?

The trial court ruled for U.S. Air, rejecting Barnett’s ADA claim without a trial. But the 9th Circuit Court of Appeals, in a divided opinion, reversed the lower court and reinstated the claim for trial.

The 9th Circuit’s majority opinion held that a voluntary seniority system should not be an absolute bar to a disabled employee’s request for reasonable accommodation. However, it could be a factor to be considered in deciding if the accommodation would cause undue hardship and therefore excuse the employer from liability. According to the court, the facts of each specific case would have to be analyzed to decide if reassignment or transfer of an employee in violation of a voluntary seniority system would cause sufficient hardship.

Significantly, the appellate court opinion went further and emphasized the employer’s duty under the ADA to “engage in an interactive process to find a reasonable accommodation” for a disabled employee (perhaps even before the employee has actually requested accommodation). Failing to engage in this interactive process may be enough to make the employer liable for damages. Although this is an important point for employers to remember in dealing with their employees, the seniority question is the only issue to be decided now by the Supreme Court.

Patents – “Doctrine of Equivalents”

In a high-tech world where patents and other intellectual property have great value, businesses seeking to protect their patents are closely watching a patent dispute between two companies over a machine part called a magnetic cylinder.

Patent law protection has long included a concept called “the doctrine of equivalents.” In simple terms, that doctrine is intended to protect patent holders against competitors seeking to evade patent infringement by making very minor changes to a protected invention. Under the doctrine of equivalents, a patent holder can successfully claim patent infringement against a similar invention with only insubstantial changes, so long as the new product is equivalent to the protected invention.

However, an appellate court decision last year in the magnetic cylinder dispute, known as the Festo case, has caused much concern among patent holders. In that case, the U.S. Court of Appeals for the Federal Circuit ruled that the doctrine of equivalents could not be relied on by the patent holder for any claim that was amended in the patent application process.

Amendments during the application process are frequent, and many successful patent infringement claims are based on the doctrine of equivalents. As a result, according to business groups that urged the Supreme Court to review this case, the Festo decision could place the strength or value of more than a million existing patents at risk. Some have even argued that the appellate court decision has virtually eliminated the entire doctrine of equivalents. On the other hand, businesses being sued for patent infringement have argued that the doctrine of equivalents has been used too widely, hampering the creative process.

Since patent law is extremely intricate, often merging difficult legal and scientific issues, the Supreme Court’s upcoming ruling in Festo may prove to be one of the most complicated decisions this term. But businesses owning patents, as well as those accused of patent infringement, will surely be affected by the outcome of this important case.

Property Rights – “Takings Clause”

In a case that could prove significant to developers and property owners, especially in coastal states such as California, the Supreme Court is being asked to decide if a temporary moratorium on development can force the government to compensate a landowner for “taking” the property. Under the Takings Clause of the U.S. Constitution, the government must pay fair market value for land that it takes from private property owners.

Courts have wrestled for years with exactly what constitutes a taking to trigger this provision. There is no question that the classic example – the government condemning property for a highway or other public use – is a taking of property by the government. But, under some circumstances, land use regulations may also force the government to pay, if the regulation takes away all the effective value of the property.

Recently, the Supreme Court has leaned toward property owners and against the government in these takings cases. A decision from the court last June continued that trend, saying the fact that a landowner bought property knowing it was subject to development restrictions does not necessarily preclude the landowner from winning compensation under the Takings Clause. That knowledge may still be a factor, but it will not automatically rule out a claim.

The takings case for this term involves 450 Lake Tahoe area landowners who contend that a temporary moratorium on development, adopted pending approval of a new regional plan for the area, was a taking that would entitle them to damages. This particular moratorium lasted almost three years, although in fact other decisions of the Tahoe Regional Planning Agency have kept some of these landowners from building on their property for 20 years.

The trial court ruled for the landowners, but the 9th Circuit Court of Appeals decided that a temporary moratorium such as this did not constitute a taking. The appellate court opinion noted that a ruling to the contrary would discourage governments from taking time to make reasoned decisions on land use planning.

However, a strong dissent from 9th Circuit judges seeking a rehearing of the case accused the majority opinion of ignoring a 1987 Supreme Court case indicating that a temporary taking of property can be a basis for requiring the government to compensate the landowner. The Supreme Court will now have to decide which group of judges properly interpreted its prior decision. Environmentalists and governmental planning agencies will be awaiting the outcome with as much interest as developers and landowners.

HMOs – Interaction of State and Federal Law

Finally, a case involving health maintenance organizations (HMOs) and the interaction of state and federal law is scheduled to be decided by the Supreme Court, if Congress does not act first and pass some type of a patients bill of rights. The case before the court asks whether the primary federal law on employee benefits, the Employment Retirement Income Security Act (ERISA), overrides an Illinois state law providing for independent review of an HMO’s coverage decisions. In addition to Illinois, 36 other states, including California, have laws providing for some type of independent review of HMO decisions.

Generally, ERISA preempts state laws to allow employers operating in many different states to avoid the maze of potentially conflicting state regulations on pension plans and other employee benefits. But there are exceptions to the federal preemption, and the court is being asked to decide whether a state can require a binding independent review of an HMO decision, despite the general preemption principle. Lower courts have reached conflicting outcomes on the issue.

However, if Congress passes a new law that requires independent reviews nationwide, it is likely that the Supreme Court would consider the Illinois case moot and not hear the appeal. But if the case is heard, the outcome could affect not only HMOs and employees covered by them through employer-provided health plans. An expansive opinion by the Court could have much a larger impact – on issues such as whether ERISA protects employers from state law claims, or even broader questions of whether federal law precludes state regulation of business in other areas, as well.

Conclusion

All these cases are due to be argued before the court in the next few months, with decisions coming at some point before the court completes its term at the end of June 2002. While the court will likely agree to hear additional business-related cases, these five cases alone demonstrate how important the 2001-02 term of the Supreme Court could be to a wide range of businesses and employees.

About the Author(s)

Larry Bumgardner, JD, is an associate professor of business law at Pepperdine University's Graziadio School of Business and Management. Previously, he served as executive director of the Ronald Reagan Presidential Foundation and the Reagan Center for Public Affairs in Simi Valley, California. A graduate of Vanderbilt University School of Law, he has also taught political science, public policy, and communications courses at Pepperdine.

Issue: 2001 Volume 4 Issue 4

Topic: Business Law

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