State & Local News Vol. 20, No. 2, Winter 1997 Supreme Court Watch By Beate Bloch This column completes the roundup of the October 1995 Term decisions of special interest to state and local governments. Due Process In Montana v. Egelhoff, 64 U.S.L.W. 4500 (decided June 13), a sharply divided Court upheld a provision of the Montana Code that voluntary intoxication may not be taken into account in determining the existence of a mental state that is an element of a criminal offense. The Montana Supreme Court had held that the exclusion of evidence of defendant's intoxication violated his due process rights, because such evidence was relevant in determining whether he had "acted knowingly and purposely." The Supreme Court reversed, 5 to 4. Justice Scalia, joined by the Chief Justice and Justices Kennedy and Thomas, wrote the Court's plurality opinion, noting first that due process does not include the right to introduce all relevant evidence. The opinion reviewed the old common law, which did not allow intoxication as an excuse. Although more modern doctrine generally allows evidence of intoxication to negate the element of intent, nine other states follow the Montana rule. Justice Ginsburg, concurring in the judgment, thought that the state had the right to define the elements of an offense, including the defendant's mental state. Justice O'Connor, joined in dissent by Justices Stevens, Souter, and Breyer, noted that the state's Code provision did not redefine an offense, but rather denied the defendant a fair opportunity to present a defense, and relieves the state's burden of proving each element of the crime. Justice Souter, dissenting separately, thought the Court should accept the Montana Supreme Court's statement of state law. Justice Breyer, joined by Justice Stevens, also dissented separately. Preemption Doctor's Associates v. Casarotto, 64 U.S.L.W. 4370 (decided May 20), involved another Montana statute. The law made an arbitration clause in a contract unenforceable unless notice that the contract was subject to arbitration was underlined in capital letters on the first page of the contract. A franchise agreement for a Subway shop in Great Falls, Montana, provided for the settlement of any controversy or claim by arbitration, but did not observe the special state statutory requirement. The Montana Supreme Court refused to order arbitration. The Supreme Court reversed, 8 to 1, on the ground that the Montana statute was preempted by the Federal Arbitration Act. Justice Ginsburg, for the Court, held the case was governed by Allied-Bruce Terminix Companies v. Dobson, 513 U.S. ___ (1995), which ruled that a state may not "place arbitration clauses on an unequal 'footing' directly contrary to the Act's language and Congress's intent." Arbitration agreements may not be invalidated "under state laws applicable only to arbitration provisions." Justice Thomas dissented, as he had in Allied-Bruce, because he thought that section 2 of the FAA did not apply to proceedings in state courts. In Medtronic, Inc. v. Lohr, 64 U.S.L.W. 4625 (decided June 26), Lohr had filed a suit for damages under Florida common law when her pacemaker failed. The district court held her claims preempted by the Medical Device Amendments of 1976, 2 U.S.C. 360k(a) (MDA). The court of appeals affirmed as to the claims based on negligent manufacturing and failure to warn, but reversed as to the negligent design claims. The Supreme Court, in turn, reversed in part, holding, 5 to 4, that there was no preemption. Justice Stevens' opinion for the Court, joined for the most part by Justices Kennedy, Souter, Ginsburg, and Breyer, noted that the Food Drug and Cosmetic Act of 1906 (FDCA) provided for pre-market approval of new drugs, but not of devices. The MDA created three categories of devices, based on risk. Pacemakers are in Class III, which requires pre-market approval of devices that present "a potential unreasonable risk of illness or injury," or are "purported or represented to be for a use in suppressing or sustaining human life or . . . of substantial importance in preventing impairment of human health." Pre-1976 devices could remain on the market until the pre-market approval process was completed. In addition, devices that were found by the Food and Drug Administration (FDA) to be "substantially equivalent" to pre-existing devices could continue to be marketed, at least until the FDA initiated the pre-market approval process for the underlying device. This course was followed by the petitioner with respect to the pacemaker lead that was claimed to be faulty. Section 360k(a) precludes a state from imposing any requirement (1) different from or in addition to federal law, and (2) relating to the safety or effectiveness of a device. Congress did not, however, intend a "sweeping pre-emption of traditional common law remedies against manufacturers and distributors of defective devices." Justice Breyer wrote a concurring opinion. Justice O'Connor, joined by the Chief Justice and Justices Scalia and Thomas, in partial dissent, would have affirmed the court of appeals decision, except for the holding that the common law claim alleging violation of federal requirements was preempted. In Smiley v. Citibank (South Dakota), 64 U.S.L.W. 4399 (decided June 3), the petitioner held credit cards issued by the respondent, a national bank in South Dakota. The suit claimed that late-payment fees charged by the bank, although they were legal in South Dakota, violated California law. The California courts granted the defendant judgment on the pleadings, on grounds of preemption by the National Bank Act of 1864, which permits "interest at the rate allowed by the laws of the State . . . where the bank is located." 12 U.S.C. 85. The Supreme Court affirmed, unanimously, in an opinion by Justice Scalia. Following the California trial court's decision, the comptroller of the currency had proposed a regulation, which was adopted on February 9, 1996, defining "interest" as including late payment fees. The Court found the comptroller's interpretation reasonable; it was not important that it had not been announced until the issue arose in this litigation. Punitive Damages In BMW of North America v. Gore, 64 U.S.L.W. 4335 (decided May 20), the Court, for the first time, reversed an award of punitive damages as excessive. The Alabama Supreme Court had sustained a $2 million award of punitive damages (reduced from the jury's award of $4 million) to the purchaser of an automobile because of the manufacturer's failure to disclose a paint repair costing $600, which may have reduced the value of the $40,000 car by $4,000. The manufacturer's "suppression" of this "material fact" was "fraud" under an Alabama statute providing for punitive damages. The Supreme Court reversed, 5 to 4. Justice Stevens, who wrote the Court's opinion, began by noting: "Punitive damages may properly be imposed to further a State's legitimate interests in punishing unlawful conduct and deterring its repetition." The award in this case, however, was excessive in light of the factors to be considered. The manufacturer's conduct was not particularly reprehensible, and the harm to the purchaser was purely economic; the ratio of the punitive damages to the actual damages was excessive 500 times the amount of the actual harm; the award was disproportionate to the maximum fine of $2,000 for a comparable violation of the Alabama Deceptive Trade Practices Act; and a more modest sanction probably would have been sufficient to induce the manufacturer to change its policy. Justice Breyer was joined by Justices O'Connor and Souter in a concurring opinion. Justice Scalia was joined by Justice Thomas in dissent, on the grounds that this was a matter of state concern, and that the protection afforded by the Fourteenth Amendment is procedural, rather than a substantive guarantee. Justice Ginsburg's dissent, joined by the Chief Justice, thought that punitive damages were a matter of state concern. State & Local Law News home page