The Supreme Court: `Leave It To The States'

You need sharp eyes to find Casey, Wis., population 400, in a road atlas. But the U. S. Supreme Court has put the rural hamlet squarely on the legal map, right in the center of a raging debate over how much regulatory clout cities and states can wield over business.

Back in 1985, Casey town officials adopted an ordinance that required residents to obtain a permit before spraying their land with pesticides. The rule enraged at least one resident, who made a federal case out of it--with the encouragement of pesticide trade groups. On June 21, the high court unanimously refused to toss out the statute, ruling that federal regulations governing the use of pesticides weren't broad enough to preempt similar local laws.

The Casey decision fits a pattern of judicial restraint in business decisions--the hallmark of a court that has handed more sway over business to states and municipalities. "It's very much a `leave it to the states' philosophy," says Stephen A. Bokat, counsel to the U. S. Chamber of Commerce.

DUE PROCESS. It's a trend with an ironic twist. Business once hailed the court's new direction. Now, business interests, facing activist state regulators, must stand in line with pro-choice activists, civil libertarians, and opponents of the death penalty to seek relief from Congress. "The business community used to oppose federal regulation," notes Mark I. Levy, a Chicago lawyer who frequently argues cases before the Supreme Court. "Now, they're moving to the point where, if there is to be regulation, they would rather it be uniform." "Uniform" means "Made in Washington." The court will again address federal-state conflicts in the term beginning in October, when it considers if federally mandated health warnings on cigarette packs immunize tobacco companies from state liability suits.

Increasingly, the justices' narrow readings of legislative language--and constitutional protections--are working to the corporate world's disadvantage. In perhaps its most important business ruling of the 1990 term, the court upheld a $1 million punitive damages award against a California insurer that defrauded an Alabama woman of $4,000. Some justices in earlier decisions had suggested that the way juries award huge punitive damages may violate a company's right to due process. But the 7-1 vote instead yielded to the standards states set on jury awards.

In weighing whether Congress meant to exclude states from regulating certain areas of commerce, the justices rely not only on the law's specific language but also on the legislative record. In the Casey decision, for example, Justice Byron R. White noted that the key committees with jurisdiction over the pesticide bill in effect asked the court to decide how federal law affected state and local regulations. Similarly, in Ingersoll-Rand vs. McClendon, the justices ruled that Congress clearly intended for federal law to preempt state law in cases concerning pension benefits.

The court's rejection of judicial activism also showed up in a May ruling that made it easier for mutual-fund holders to sue fund managers. Normally, in such cases, shareholders must notify the board before filing suit on behalf of other shareholders. But there is a "futility exception" that says that a shareholder can sue without first consulting directors if the stockholder knows consultation would be futile. In the case, Kamen vs. Kemper Financial Services, a federal appeals court had crafted new law by doing away with the exception, on the grounds that it had spawned too much litigation. The high court reversed, saying that the lower court had overreached itself.

TILTING. Overall, the session ended June 27 wasn't one that gave business much to cheer about (table). In a high-profile case, the court ruled that sex-discrimination laws prohibit companies from barring fertile women from dangerous jobs. And the justices ruled 7-2 that the First Amendment does not prevent a state from imposing a tax on cable television.

The court is even tilting toward the states in cases it chooses not to hear, a category that is growing in importance as the justices deliberately shrink their work load. In February, they declined to hear an appeal from a defunct New York company whose executives were convicted of endangering workers' health. The company and the executives had argued that the federal Occupational Safety & Health Act foreclosed such prosecutions by states.

All of this leaves business with few alternatives but to trek up to Capitol Hill. But lawmakers have shown little interest in reforming liability laws or curbing the federal racketeering statute, two issues where business has fared poorly when the high court has tackled them. "It will be a very difficult regulatory situation if we're going to try to market products nationally, yet deal with possibly 80,000 regulatory jurisdictions," says a spokesman for pesticide maker DowElanco, an Indianapolis-based joint venture between Dow Chemical Co. and Eli Lilly & Co..

Corporate America was an early fan of President Reagan's policy of naming judges inclined to stick to the letter of the law. But recent Supreme Court rulings recall the old saw: Be careful what you wish for. You just might get it.


Key Supreme Court decisions

PACIFIC MUTUAL LIFE INSURANCE VS. HASLIP The court upheld a $1 million punitive-damage award to an Alabama woman who suffered $4,000 in insurance-fraud losses

UNITED AUTO WORKERS VS. JOHNSON CONTROLS The justices ruled that employers may not bar women of child-bearing age from jobs in which they could be exposed to chemicals that might cause birth defects

INGERSOLL-RAND VS. McCLENDON The court ruled that federal law preempts state claims in wrongful-discharge suits

TOIBB VS. RADLOFF The court extended the Chapter 11 provisions of federal bankruptcy law to individuals

EEOC VS. ARABIAN AMERICAN OIL The court said the 1964 Civil Rights Act doesn't protect U.S. citizens working abroad


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