Oral argument: Apr. 25, 2007
Appealed from: United States Court of Appeals, Eighth Circuit (Aug 25, 2005)
FEDERAL COURTS, FEDERAL OFFICER REMOVAL, REMAND, TOBACCO LITIGATION, CLASS ACTION
Philip Morris removed a class action tobacco lawsuit from an Arkansas state court to the Federal District Court for the Eastern District of Arkansas. Plaintiffs Watson and Lawson sought to remand the case to state court, but their motion was denied. The Eighth Circuit held that Philip Morris was a corporation qualifying as a “person acting under a federal officer” and thus entitled to removal under 28 U.S.C. § 1442(a)(1). The Supreme Court takes up the question of whether parties operating in an arena of heavy federal regulation qualify under this federal officer removal statute or, to the contrary, if the statute’s origins and history preclude such interpretation.
Whether a private actor doing no more than complying with federal regulation is a “person acting under a federal officer” for the purpose of 28 U.S.C. § 1442(a)(1), entitling the actor to remove to federal court a civil action brought in state court under state law.
Where no other reason exists for a federal court to have jurisdiction in a case, is a defendant corporation entitled to have the case heard in federal court because that corporation should be considered a “person acting under a federal officer” where the conduct in question occurred in a field which is heavily regulated by the federal government?
Lisa Watson and Loretta Lawson are smokers who purchased “light” cigarettes from tobacco company Philip Morris. Watson v. Philip Morris Companies, Inc., 2003 WL 23272484 *1 (E.D. Ark 2003) (not reported in F. Supp.2d). Watson and Lawson, and the class of individuals they represent, have sued the Philip Morris company for false advertising with regard to these purchased cigarettes, specifically, the Marlboro Lights and Cambridge Lights brands. Id. Essentially, Watson and Lawson allege that while Philip Morris advertised these cigarettes as “light,” and described them to be low in tar and low in nicotine, the cigarettes actually contained a deceptively high level of both these ingredients. Id. at *1 – 2.
The tobacco industry is one of the most regulated industries in the United States of America. See Watson v. Philip Morris Companies, Inc., 420 F.3d 852, 860 – 861 (8th Cir. 2005). In addition to a myriad of other requirements, the Federal Trade Commission (FTC) requires that cigarette makers label their products in accordance with a detailed system of testing known as the Cambridge Filter Method. Id. at 855. This testing system uses a machine to determine the amounts of tar and nicotine in a cigarette, which, in turn, dictate what label the cigarette should bear. See id. And while the FTC has acknowledged that this machine-based testing method may not accurately reflect the amount of tar or nicotine actually inhaled by a human smoker, it at least provides a standardized measurement of comparison by which smokers can compare tar and nicotine levels using cigarette labels. See id. at 862. It is important to note that the Cambridge Filter Method testing system is now administered exclusively by the tobacco companies, which entered into an agreement with the FTC to self-regulate and self-monitor, thereby eliminating the need for formal administrative rulemaking. Id. at 855. The FTC has retained the right to specify the standards of regulation, conduct unlimited monitoring, and engage in inspections to ensure that the process, and the labeling mandates it yields, are strictly followed. Id. at 858 (detailing specific requirements set forth for industry testing by the FTC).
According to Watson and Lawson, Philip Morris intentionally engineered its light cigarettes so that they would register low tar and nicotine levels using the FTC Method, thus allowing them to bear a “light” label, while at the same time delivering high tar and nicotine to the smoking consumer. Id. at 855. Watson, Lawson, and the other members of their class allege that Philip Morris, by engaging in this effort to “design around” the test, had deceived and misled their consumers. See id. at 861. As such, they filed a class action lawsuit in Arkansas state court against Philip Morris for violation of the Arkansas Deceptive Trade Practices Act (Ark. Cod. Ann. §§4-88-101 et seq.) on behalf of themselves and other individuals who had purchased the “light” cigarettes based on the false belief that they contained lower amounts of tar and nicotine. Id. at 855.
Philip Morris petitioned to move the lawsuit from state court to federal court under a law commonly known as the “federal officer removal statute,” a law codified in the United States Code at 28 U.S.C. §1442(a)(1). This statute allows a party to remove a lawsuit from state court and put it into federal court (hence the moniker “removal statute”) when that party is sued for actions taken at the direction of a federal officer or agency. See 420 F.3d at 855.
Once the lawsuit was in federal court, Watson and Lawson immediately filed a motion to send the case back to state court, but the federal district court sitting in the Eastern District of Arkansas denied the motion. Id. At that point, Watson and Lawson filed another appeal (an “interlocutory appeal,” which is, essentially, an appeal from an order of a court that is not a final decision) asking the Eighth Circuit Court of Appeals to reconsider the issue as to whether Philip Morris was acting under the direction of a federal officer such that the case should be in federal court. Id. The Eighth Circuit affirmed the denial of remand, thus keeping the case in federal court. Id.
It was at that point that Watson and Lawson appealed to the Supreme Court to determine whether Philip Morris should qualify for the federal removal statute.
Since the Supreme Court is only deciding whether Philip Morris can properly demand to have this action heard in federal court under 28 U.S.C. § 1442(a), it will not reach the merits. A ruling in Philip Morris’s favor would necessarily mean that the Court endorses the notion that the FTC regulates the tobacco industry so heavily as to remove most if not all discretion from conforming conduct by tobacco defendants, and that could prove an important point for Phillip Morris in defending this suit and other actions around the country. As evidence of the ramifications of this suit on others involving Philip Morris, one need only look at the language employed by them in a response to a briefing submitted by the Solicitor General: “The Department of Justice is currently involved in litigation against respondent, in which one of the central issues is the FTC's regulatory history with respect to low yield cigarettes.” Respondent’s Brief in Response to Brief for the United States as Amicus Curiae 1.
But even a complete victory before the Supreme Court for Philip Morris would mean it still has to defend itself against this class action in a federal court. Should the Supreme Court reverse the Eighth Circuit, then Watson and Lawson’s lawsuit will go forward in Arkansas state court. Does that matter? Why so much litigation to decide whether this lawsuit goes forward in state or federal court? For starters, there is research supporting the conventional wisdom that defendants who remove cases to federal court win those cases much more frequently than those who must defend in state court or who were originally sued in federal court. See Clermont & Eisenberg, Do Case Outcomes Really Reveal Anything About The Legal System? Win Rates and Removal Jurisdiction, 83 Cornell L. Rev. 581 (1998). On top of that, defendants who lose in federal court, especially in jury trials, have a much more favorable reversal rate than plaintiffs. Clermont & Eisenberg, Anti-Plaintiff Bias in the Federal Appellate Courts, 84 Judicature 128 (2000). Of course, the parties are not crafting their legal arguments with reference to these very practical ramifications on the likely outcome; but, instead, the issues they identify turn on the division of labor between state and federal courts as created by the Constitution.
The Madisonian Compromise
Since the very founding of our country and the creation of our national judicial system, Congress deemed state courts fully capable of hearing legal claims arising under both state and federal law. Fallon, et al., Hart & Wechsler’s The Federal Courts and the Federal System 6 – 14 (3d Ed. 2003). Indeed, that belief is at the very heart of the Madisonian Compromise: in lieu of creating a system where federal courts heard only federal claims and state courts heard only state claims, the founding fathers agreed that while there would be just one national Supreme Court, the already-existing individual state courts would be deemed competent to hear both state and federal claims. Id. Article Three of the Constitution gives Congress the power to establish lower federal courts, but does not mandate their existence. U.S. Const. art. III, § 1.
Such a “compromise” both prevented Congress from having to create additional lower federal courts, and also recognized the inherent value that state courts have as protectors of federal rights. See Hamilton, Federalist No. 81. After all, the rationale went, the states were all members of the newly created federal system and had as much interest in enforcing the nation’s new federal rights as any other court would. See id.
Today, although the doctrines driving both state and federal jurisdiction have evolved over time, and the complexity of today’s jurisdictional rules belies the elegant simplicity of that original compromise, one principle of our legal system remains clear: our nation holds a fundamental belief in the inherent competence of state courts to hear federal claims.
The Federal Officer Removal Statute
Unfortunately, history demonstrates that this presumption of state court competence has not always been justified. At times, state courts have refused to enforce or uphold unpopular federal laws, despite their clear obligation to do so. See Fallon et al. at 908 – 910. For example, during the War of 1812, the courts of states who opposed the war refused to enforce an embargo on England that was part of the war effort. Brief for Petitioners at 3. In those cases, private shipowners filed harassing lawsuits against federal customs collectors attempting to enforce the embargo, and state courts began to side with the shipowners and against the federal officials who enforced the national interest. Id. In reaction to this kind of state court behavior which was blatantly hostile to federal interests (and which, unfortunately, would be repeated throughout history), Congress enacted the first “federal officer removal statute” in 1815—and such a statute has existed continuously, in one form or another, since that date. Id.; see also Fallon et al. at 908 n.8.
The federal officer removal statute essentially ensures that when a federal official is sued while acting under color of that federal office, he or she is entitled to remove that lawsuit to federal court. Fallon, et al. at 908 – 910. In turn, such removal is expected to ensure a fair outcome of the litigation, if not a favorable one, for the federal official. Id. In theory, then, the statute promises nothing more than a fair forum to the federal officer.
In light of the history of the statute, a claim that Philip Morris, a for-profit tobacco company, would be eligible to avail itself of a statute’s promise of a fair forum to a federal official seems, at first glance, laughable. But the Eighth Circuit, applying precedent and the four-part test there developed, reached the conclusion that the FTC’s regulation of the tobacco industry was so pervasive and comprehensive that Philip Morris could take advantage of federal officer removal because it was “acting under” strict guidance from the FTC. 420 F.3d at 855 - 64.
The crux of Philip Morris’s argument is that the extensive nature of the FTC regulation, the unprecedented amount of involvement and oversight of the FTC, and the “comprehensive and detailed control” the FTC wields in connection with the cigarette industry has ultimately yielded a “level of compulsion that established that Philip Morris was indeed ‘acting under’ the direction of a federal officer” when it tested and labeled its light cigarettes. Id. at 859. According to Philip Morris, then, since it was “acting under” the direction of the federal office of the FTC, it had no choice but to test and label its cigarettes the way it did. Id. at 862. Therefore, it asserts, it should be protected by the removal statute’s promise of a forum in federal court and it should not be subjected to suit in a state court which might be tempted to side with its own states’ citizens (who, at this point, are likely suffering from the long-term ill-effects of smoking and might make very sympathetic plaintiffs). Brief in Opposition at 25.
The Eighth Circuit agreed with Philip Morris. Not only did the Eighth Circuit consider the FTC’s involvement in the cigarette industry to be “unprecedented,” but it also believed itself to “have been instructed by the Supreme Court to interpret [the federal officer removal statute] broadly.” 420 F. 3d at 860. As such, the fact that the FTC never formally regulated the cigarette testing, and the fact that Philip Morris itself, and not the FTC, conducted the tests, were of no import. Id. Both the FTC’s involvement in the regulation scheme, and its compulsory labeling practices, were enough to find that Philip Morris was merely acting under color of a federal official when it labeled its light cigarettes, and therefore, had every right to remove the case to federal court when sued for those very practices. Id.
Watson and Lawson, on the other hand, essentially assert that Philip Morris’s use of the federal officer removal statute as a litigation tool in a potentially costly class action suit is nothing short of perverse misuse of the law. See, generally, Brief for Petitioners. According to Watson and Lawson, the federal officer removal statute serves a clear, historical function, one which is not implicated in their lawsuit: it exists to protect federal official from inappropriate state court interference in the fulfillment of their duties, not to give self-interested private actors a more favorable forum for their class-action defense. Id. at 9. Philip Morris, they argue, is merely complying with trade industry practice regarding the labeling of cigarettes, a practice which is neither required by any formal FTC regulation nor specified by defined FTC terminology; according to Watson and Lawson, “the history and purposes of the federal officer removal statute . . . make clear that [it] does not apply to private regulated commercial actors.” Id.
Moreover, according to Watson and Lawson, since the FTC’s regulation of the tobacco industry is governed by a consent order instead of a formal rulemaking process, that relationship is legally insufficient to trigger the “acting under” standard necessary for federal officer removal. Id. at 44 – 48. Watson and Lawson insist that Philip Morris is merely complying with government regulation in the normal way that many other companies and industries in America are forced to do on a daily basis, while at the same time asserting a claim that they need special treatment. Id. at 9. As they explained in their brief to the Supreme Court, the federal officer removal statute “was designed to protect federal officers from state-court . . . actions that, because of the costs and burdens of litigation in remote locations and the risk of anti-federal prejudice, could hinder the enforcement of unpopular federal laws . . . . [a purpose which] has no application to a private commercial actor sued for acts undertaken in compliance with federal law.” Id..
Ultimately, the Supreme Court’s decision here will turn on its interpretation of the federal officer removal statute based on the statute’s history, text, and subsequent application by courts. If the Supreme Court takes a “letter of the law” approach, it may conclude, as did the Eighth Circuit, that according to the delineated requirements articulated by federal courts who have previously considered the statute, Philip Morris meets the standard of eligibility for protection, and the case should stay in federal court. If, however, the Court is moved by the argument that the intended purpose of the statute could never be interpreted as contemplating parties like Philip Morris who are complying with (as opposed to enforcing) federal regulations, then Philip Morris may indeed get to find out whether it can get a fair trial in a state court.