High Court Anxiety

Why business is fretting about the appointments to come

Business cheered when the U.S. Supreme Court blessed affirmative action in the landmark Grutter v. Bollinger decision on June 23. Citing legal briefs signed by more than 30 companies, including General Motors (GM ) Microsoft, KPMG International, Bank One (ONE ) Eli Lilly (LLY ), and Procter & Gamble (PG ), Justice Sandra Day O'Connor based her ruling, in part, on the value of ethnic diversity in the workplace. "American businesses have made clear that the skills needed in today's increasingly global marketplace can only be developed through exposure to widely diverse people, cultures, ideas, and viewpoints," she wrote on behalf of a narrow 5-4 majority.

But Corporate America's celebration could be short-lived. Three justices -- 78-year-old Chief Justice William H. Rehnquist, 73-year-old O'Connor, and 83-year-old John Paul Stevens -- are going to be stepping down one day soon, perhaps very soon. While Rehnquist's retirement would be unlikely to change the balance of the Court, both O'Connor and Stevens voted in favor of the University of Michigan Law School's affirmative action plan. If President George W. Bush replaces either of them with an ideological conservative along the lines of Antonin Scalia or Clarence Thomas, both of whom he has long held up as his favorite Supreme Court justices, then the next case considering the use of racial preferences by schools, police academies, or department stores could easily go the other way.

Nor is affirmative action the only issue that could swing against the business community if Bush gets a chance to reshape the high court. Corporate attorneys have long considered Scalia, Thomas, and their ilk a mixed bag. True, they protect companies from meddlesome federal regulations, but they tend to ignore equally onerous state laws. They stand up for corporate property rights but vote against tort reform. "Being a conservative is not the same thing as being pro-business," says Robin S. Conrad, senior vice-president of the U.S. Chamber of Commerce's National Litigation Center.

Conservatives come in many species. The Constitutional conservatism of Scalia and Thomas has nothing to do with the economic conservatism of the Republican Party. It is based on a set of convictions about how laws should be interpreted, rather than any broad ideological commitment to free markets. In essence, the two jurists that Bush admires so much are legal fundamentalists. They believe that the Constitution is like the Holy Bible -- a sacred document that should be interpreted narrowly and literally. "What I look for in the Constitution is precisely what I look for in a statute: the original meaning of the text," wrote Scalia in his 1997 book, A Matter of Interpretation. He calls himself a legal "originalist."

This ideology has already driven Scalia and his intellectual soulmate to vote against Corporate America in a couple of key cases in the current term. So far, the biggest victory for business has been State Farm Mutual Automobile Insurance Co. v. Campbell, in which a six-judge majority held that the due-process clause of the 14th Amendment limits gargantuan punitive-damage awards. Among the three dissenters were Scalia and Thomas, whose strict view of the Constitution led them to conclude that the document could not be used to cap runaway jury awards. The duo were in the majority, however, in Norfolk & Western Railway v. Ayers -- Corporate America's biggest loss. In a 5-to-4 vote, the court turned down an opportunity to limit the liability of asbestos defendants. The justices declared that the tidal wave of litigation in this area didn't justify modifying the traditional common-law tort rules, even though those rules have driven dozens of companies into bankruptcy.

This is the most clearly divided Supreme Court in history. Recent casebooks are full of rulings that might have been decided differently if a Scalia clone sat in place of O'Connor or Stevens. Witness BMW of North America Inc. v. Ira Gore Jr., a 1995 decision that many people consider the most important business victory of the past decade. Like the State Farm case, it dealt with whether the Constitution places a ceiling on punitive damages. Five justices -- including Stevens, O'Connor, David H. Souter, Anthony M. Kennedy, and Stephen G. Breyer -- held that it did. If Scalia and Thomas had one more vote in their dissenting camp, the BMW decision would have gone the other way.

Besides tort reform, the other issue that could swing against Corporate America if the fundamentalist camp grows is federal preemption. This is the doctrine that companies use when they want to protect themselves against a tough state law. For example, after Beneficial National Bank, a division of HSBC (HBC ) Holdings PLC, was sued for violating Alabama's laws against usury, the bank responded by asserting that it was in compliance with the National Bank Act -- the federal law it claimed was the sole authority on consumer interest rates. In a decision released on June 2, seven judges agreed. The two dissenters? Scalia and Thomas. The majority's holding "represents a sharp break from our long tradition of respect for the autonomy and authority of state courts," Scalia complained.

This isn't to say that originalist judges are always bad news for companies. Far from it. There are plenty of issues where their thinking is more in tune with the business community than the court's liberal wing. Scalia, Thomas, and others in their mold are passionately devoted to the values that the Founding Fathers cherished, such as property rights. They tend to support developers fighting local zoning regulations and companies trying to argue that environmental laws constitute "takings" of their private property.

Although the court takes few intellectual-property cases, their instincts would probably be to support music companies over digital pirates. Similarly, Scalia and Thomas are strong proponents of free speech for companies -- the doctrine that protects e-mail spam, justifies unlimited corporate political donations, and is used by drug companies and tobacco manufacturers to combat Food & Drug Administration advertising restrictions. A major corporate free-speech decision is expected to be handed down on June 26 in Nike (NKE ) Inc. v. Kasky, which will review whether CEO Philip H. Knight can be sued for making allegedly false statements about the company's Third World employment practices.

In the near term, a revamped Supreme Court could probably help Corporate America most with the Americans with Disabilities Act -- a statute that has been the focus of several recent close decisions. Since it was enacted in 1990, the ADA has been implemented with thousands of pages of detailed architectural-design regulations. The issue is whether these requirements are an unconstitutional expansion of the law. "I believe that requiring a 36-inch doorway is an appropriate way of ensuring equal protection [for disabled people]," says Linda D. Kilb, a staff attorney with the Disability Rights Education & Defense Fund Inc. But that is a view that textualists like Scalia & Co. might find harder to uphold, Kilb concedes, given that "nowhere in the 14th Amendment does it say that equal protection is a 36-inch doorway."

Of course, the ADA controversy is part of a much broader social debate about the scope of civil rights. The clamor surrounding these issues -- not to mention the continuing abortion controversy -- has drowned out the narrow legal technicalities of interest to business. So far, most companies have steered clear of the acrimony associated with federal lower court judicial appointments -- and they're likely to do the same thing if any Supreme Court vacancies open up. "Our customers are Democrats, Republicans, and independents," says a high-ranking attorney at one of the country's biggest consumer-product companies. "There's too much blowback potential."

Don't mistake Corporate America's quiet for indifference, though. The stakes in the judicial wars are enormous for many industries. The historical record indicates that they would probably be better off if the MBA President appoints a pragmatic conservative in the mold of Kennedy rather than an ideological conservative like Scalia or Thomas.

By Mike France in New York

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