May 01, 1999
Three cases with significant implications for environmental and/or property-rights law are addressed below. Kumho Tire Co. v. Carmichael, 1999 WL 152455 (Mar. 23, 1999), marks the second case since Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 589 (1993), addressing the role of federal courts in policing the admission of expert testimony. Despite a Justice Scalia concurrence calling for the gatekeeping function in Daubert not to be abandoned, Kumho Tire will likely make it easier for expert testimony of dubious validity to be admitted in federal court. Philip Morris is a regulatory takings case that is refreshing in that it gives preliminary injunctive relief to business interests from an onerous system of state regulation that would destroy trade secrets. Finally, Chrysler is the latest example of a growing body of precedent in the D.C. Circuit refusing to allow agencies to enforce interpretations of ambiguous regulations against regulated parties because those parties lacked "fair notice" of such interpretations. Chrysler is a good case to read in conjunction with Roger Marzulla's testimony to Congress appearing elsewhere in this issue.
Kumho Tire is a case that I had watched closely because complex litigation, whether environmental or commercial, has come to depend so heavily on expert testimony that practitioners must be readily familiar with the standards governing its admission. This is particularly true in a defense-oriented practice where plaintiffs looking for corporations with deep pockets attempt to rustle up scientists and other experts on the fringes of the relevant discipline to testify in favor of the most implausible causation theories. Kumho Tire's ripples will be felt in all types of federal litigation and perhaps beyond (to the extent that the States receive Kumho into state law).
The facts of the case are relatively simple. Eight days after Daubert was decided, a rear tire on a minivan driven by Patrick Carmichael blew out. An accident followed, killing one of the passengers, and injuring several others severely. A few months later, the Carmichaels brought suit against Kumho Tire, which had manufactured the tire. The plaintiffs'case on causation rested on the testimony of an expert in "tire failure analysis," Dennis Carlson, Jr. See Kumho, 1999 WL 152455, at *4. Carlson conceded that the blown-out tire had traveled far—it was made in 1988 and had been installed some time before the Carmichaels bought the used minivan in 1993. He also conceded deep tread wear—from 72-100% depending on the part of the tire inspected. Moreover, he conceded that the tire had two punctures that had been inadequately repaired. Nevertheless, Carlson testified that the cause of the tire's failure was not any of these problems, but rather a manufacturing defect. See id. at *4-*5.
Kumho Tire moved to exclude Carlson's testimony under Daubert. After subjecting Carlson's analysis to the suggested four-part test in Daubert 1) whether theory is testable, 2) whether theory has been the subject of peer review, 3) the known or potential rate of error of the theory; and 4) the degree the theory is accepted in the scientific community)), the district court excluded Carlson's testimony. On reconsideration, the district court conceded that it had applied Daubert in too mechanical a fashion, but held that even a flexible application of Daubert factors warranted the conclusion that Carlson's testimony should be excluded.
On appeal, the Eleventh Circuit applied de novo review.(1) That court read Daubert to apply solely to scientific evidence and therefore to be inapplicable to this case where Carlson's testimony was merely technical in nature, or relying on skill or experience-based observation. As a result, it remanded to the district court to apply non-Daubert consideration under Fed. R. Evid. 702 (whatever that might be).
The Supreme Court ruled that the district courts may apply Daubert in such circumstances. After noting that the parties were in agreement on this issue, Justice Breyer's opinion set forth the reasons for the Court's ruling. First, Rule 702 did not distinguish textually between scientific testimony and other types of expert testimony. Second, the Court noted that Daubert's gatekeeping rationale is not limited to scientific evidence. Third, applying different standards to scientific and other types of expert testimony would prove an unmanageable and unwise rule. Even pure science can depend on observation and properly engineered equipment. Citing Judge Learned Hand's famous article,(2) which was in part the subject of a past Federalist Society symposium regarding junk science, Justice Breyer noted that because even technical evidence can be foreign to a lay jury's experience, technical and scientific evidence should be governed by the same rule.
The Court then moved into the part of its decision that disturbed Justices Scalia, O'Connor, and Thomas—causing them to write a concurrence. First the majority noted that some of the four Daubert factors might not be applicable in some cases of non-scientific expert testimony (or even some cases of scientific testimony). The remainder of that section of the opinion reads like a strong endorsement of district-court discretion, emphasizing the fact-specific nature of the inquiry and that Daubert is intended to be flexible. Despite a disclaimer that the Court did not intend to disparage Daubert's gatekeeping function,(3) this case and Joiner are likely to be read in the lower courts as endorsing most exercises of district-court discretion. Indeed, one well-positioned commentator has already flagged this reading of Joiner.(4) "Joiner is a paean to anything goes." In an attempt to stave off this effect, Justice Scalia wrote in concurrence that the discretion discussed in Kumho Tire(5) "is discretion to choose among reasonable means of excluding expertise that is fausse and science that is junky." (6) "[I]t is not discretion to perform the function inadequately." (7) But whether Justice Scalia will be successful or not will likely depend on the intellectual honesty of the judges who sit on the inferior federal courts.
Finally, the Court applied the legal rules it formulated to the facts in Kumho Tire and concluded that the district court had not abused its discretion. "[T]he court ultimately based its decision upon Carlson's failure to satisfy either Daubert's factors or any other set of reasonable reliability criteria." (8) This caused Justice Stevens to concur in part and dissent in part, arguing that the application of the standards to the facts was beyond the scope of the Supreme Court's grant of certiorari.
Growing out of the furor in the States of regulating or penalizing tobacco companies in new and interesting ways, the State of Massachusetts devised a statute that would have the effect of destroying tobacco-company trade secrets if it were complied with. Federal law requires that tobacco companies provide the Secretary of Health and Human Services with a list of ingredients in their products. This information is not provided directly, however. Rather, the manufacturers submit their ingredient information on a confidential, brand-by-brand basis to a kind of legal clearing house. That clearing house then satisfies the disclosure requirements by providing a list of all ingredients, on a non-brand-by-brand basis, to the Secretary. Unhappy with this arrangement ("[i]f you smoke Merits you want to know what is in Merits, and not what may be in every brand of cigarettes on the market").(9) Massachusetts passed a law requiring brand-by-brand disclosure and providing no protection for trade secrets. The manufacturers sued on preemption and Takings Clause grounds.
The First Circuit rejected the preemption challenge,(10) but endorsed the industry's takings challenge in the context of a preliminary injunction. That is an unusual result, not only because regulatory takings cases are difficult to win in any court, but because the presence of such constitutional issues will often induce a court to rule in the regulated party's favor on a close preemption question. After the industry lost its preemption claim, it must have been very surprised to win on the takings issue. Perhaps not, however — Massachusetts seems to have done a very poor job of arguing the takings issue. Massachusetts presented only two defenses: 1) the tobacco companies did not have reasonable, investment-backed expectations in the nondisclosure of ingredient information, and 2) the Massachusetts statute did not have an element of legal compulsion. The most significant argument that the State seemed to overlook was that the Takings Clause is generally not enforceable by an injunction and that if a compensation remedy is available, it must be exhausted before any compensation or injunction is ordered. These two limitations are collectively known as the takings ripeness doctrine.(11) The Ninth Circuit would not have gone as easy on the plaintiffs, but would have raised the ripeness issue sua sponte. From the Philip Morris II opinion it is unclear whether ripeness came up, but if it had, the only plausible basis for the First Circuit not to have addressed it seems to be based on a distinction between preliminary and permanent injunctive relief—perhaps the First Circuit believes that preliminary injunctive relief does not have to comport with the takings ripeness doctrine.
Turning to the first question actually presented, the First Circuit ruled that the industry had adequate investment-backed expectations. It noted the lengths to which some manufacturers, such as Philip Morris with regard to Marlboro, went to protect its brands. Massachusetts relied on Ruckelshaus v. Monsanto Co. 467 US. 986 (1984), which can be read to reject a takings claim for trade secrets under the analogous regulatory scheme of the Federal Insecticide Fungicide and Rodenticide Act ("FIFRA"). Relying on the distinction set forth in Nollan v. California Coastal Comm'n 483 U.S. 825, 833-34 n.2 (1987) (Scalia, J.), the First Circuit rejected the argument from Monsanto. According to the First Circuit, the key difference between this case and Monsanto is that those regulated under FIFRA received significant benefits under that regulatory scheme, whereas the tobacco industry received no offsetting benefits under the Massachusetts law. Massachusetts attempted to reply to that argument by noting that it was giving the tobacco companies the ability to do business in the State. Judge Selya easily rejected this argument: "This construct will not wash. A Monsanto-type exchange requires that the government grant a benefit of real value to compensate a property owner for a taking . . . . Permitting a company to continue conducting business within a state, while a benefit of sorts, lacks sufficient substance to create a Monsanto-type exchange." (12) Massachusetts' second defense was really just a repackaged version of its argument that it endowed the tobacco companies with a significant benefit by allowing them to do business there—because ingredient disclosure was only necessary if the relevant tobacco company wanted to do business in that state, there was no legal compulsion involved and the tobacco company should be held to the implicit bargain. Judge Selya also quickly dispensed with this argument. "[The] statute forces a party to make a Hobson's choice: either submit ingredient information containing valuable trade secrets without adequate safeguards or cease doing business in an important market. That is the essence of legal compulsion." (13)
Philip Morris II is a case to watch as it develops further — particularly with an eye toward whether the First Circuit upholds a grant of a permanent injunction, assuming the case does not settle and the district court enters such an injunction. It is likely not a cause for too great a celebration, however, because the ripeness issues that tend to block such takings cases were not addressed.
Since the mid-eighties, the D.C. Circuit has been the pioneer in developing an administrative law doctrine based on the Due Process Clause that has important implications for environmental law and property rights litigation. This doctrine is known as the "fair warning" or "fair notice" doctrine. Basically, it prohibits the enforcement of a legal rule, usually a regulation or an interpretation thereof, against a regulated party that did not have fair notice of that regulation or the relevant interpretation. This doctrine must be distinguished from the doctrines of deference to administrative agencies interpreting statutes that they have been delegated the authority to interpret (Chevron) and the greater deference available to agency interpretations of its own regulations.
General Electric Co. v. EPA, 53 F.3d 1324 (D.C. Cir. 1995), is the best of this line of cases at explaining the interrelationship between the fair warning doctrine and the doctrines of deference. If an agency advances a new interpretation of a regulation for the first time in an enforcement action, for instance, the D.C. Circuit will refuse to apply that interpretation in that case, with the result that the regulated party will prevail in the enforcement action in most cases. On the other hand, this does not mean that the D.C. Circuit will not defer to that new interpretation. Indeed, given the strength of the deference afforded to an agency's interpretation of its own regulations particularly, deference will usually be forthcoming. Such deference will simply not be applied in the very enforcement action in which it is announced. One exception to this rule has been held to exist in General Electric—where a new agency interpretation is simply the most natural reading of the regulation or statute at issue, then it can be applied even in the enforcement action in which it is announced. This is a small exception, however —an agency that is contending for the straightforward textual reading of a statute or regulation has no real need to invoke a claim to deference.
United States v. Chrysler Corp., 158 F.3d 1350 (D.C. Cir. 1998) is the most recent example in the D.C. Circuit's fair warning jurisprudence. In Chrysler, the National Highway Traffic Safety Administration ("NHTSA") promulgated a vehicle safety standard providing for the recall of vehicles whose seat belt safety anchorages could not withstand particular forces. In order to determine compliance with the safety standard, test procedures were set forth which required the use of a "pelvic body block", an L-shaped metal block that represents a human pelvis. The safety standard, did not specify the placement of this block during testing, however. Chrysler reported compliance to NHTSA for certain of its vehicles by placing the body block against the seat back. Later, NHTSA contracted out compliance testing to a private laboratory, which placed the body block away from the rear seat to save money. (Placing the body block at the back increased the likelihood that the seat belt webbing and buckles would break—thus, the contractor avoided having to pay for replacement wire rope, which the safety standard permitted to be used if such breakages occurred.) When testing was done on two Chrysler models with the body block away from the seat back, they failed. As a result, NHTSA administratively ordered their recall.
When Chrysler refused to comply with NHTSA's order, NHTSA filed suit in federal district court seeking not only a recall, but penalties. Borrowing an interpretation issued in a Federal Register notice regarding a different, but related safety standard, the district court ruled that the body block could validly have been positioned anywhere. In light of confusing statements by NHTSA made at different times, however, and the fair warning doctrine, the district court refused to hold Chrysler liable for penalties. It reached a different conclusion with regard to the recall remedy, however, and ordered Chrysler to recall the models that NHTSA contended were noncompliant. Although the district court did not do a very good of explaining the reason for the distinction, the best basis for such an argument would have noted that a recall can be conceptualized as remedial rather than punitive. If a new interpretation can be applied henceforth from the time it is announced, then a recall, if it is truly remedial in nature, might seem to pass muster under the fair warning doctrine because it is designed only to ameliorate future harm.
Chrysler appealed. The D.C. Circuit emphasized at the outset that NHTSA had two types of recall authority: 1) recalls for safety defects, and 2) recalls for noncompliance with a safety standard. NHTSA had claimed in its district court action only that Chrysler's models should be recalled because they were not in compliance with a safety standard. In this circumstance, the D.C. Circuit ruled that the fair warning doctrine applied. Some of its language suggests that it may even have found a safety-defect recall to be subject to the fair warning doctrine, however. "[A] recall, which entails the expenditure of significant amounts of money, deprives Chrysler of property no less than a fine. We have little doubt that a recall is a sufficiently grave sanction14 such that the duty to provide notice is triggered." Chrysler, 158 F.3d at 1354-55. On the facts, particularly the Federal Register notice on which NHTSA primarily relied, the D.C. Circuit held that fair notice was not given to Chrysler. "Chrysler might have satisfied NHTSA with the exercise of extraordinary intuition or with the aid of a psychic, but these possibilities are more than the law requires." Id. at 1357.
Like the single strand of dangling thread that, when pulled, eventually causes a whole garment to unravel, these fair warning cases would seem to have the potential to destabilize a number of doctrines in administrative law. First, if the fair warning doctrine is correct, then it basically means that regulations or interpretations in violation of the doctrine cannot be applied retroactively. If that is right, then retroactivity doctrine is threatened. Administrative regulations are permitted to be retroactive if Congress has clearly authorized as much. See Bowen v. Georgetown Univ. Hosp., 488 U.S. 204 (1988). But if applying regulations without fair warning is unconstitutional, then Congress cannot authorize such regulations simply by legislating in clear and unambiguous terms. Going further, the fair warning doctrine also raises the issue of whether Congress itself can make law retroactively. If an agency cannot make retroactive law by interpreting a regulation in an enforcement proceeding without violating the Due Process Clause, why does retroactive rulemaking or legislation not similarly violate the Due Process Clause?
Second, the fair warning doctrine undermines the notion that an agency can make new law in a non-rulemaking (i.e., adjudicatory) procedural mode. The National Labor Relations Board, for instance, formulates new substantive rules not through notice-and-comment promulgation of regulations, but simply through the announcement of new rules in the very cases where they are first applied. How can this be legitimate when agency enforcement actions brought for the first time in federal court cannot be based on new rule-based proceedings? Of course, the whole underpinning of the doctrine giving an agency its choice of procedural mode need not be destabilized because it would be possible to allow an agency to adopt new rules in an adjudication, but simply not to apply them for the first time in that very adjudication. Most of the utility of proceeding by adjudication would likely be lost to an agency that used such a procedural mode, however.
The fair warning doctrine is a highly significant development that already has great applicability, and has even greater potential to rationalize administrative law.
* Jeffrey Bossert Clark is an Associate at Kirkland & Ellis (Washington, D.C.).
- In General Electric Co. v. Joiner, 522 U.S. 136 (1997), the Supreme Court reversed the Eleventh Circuit's decision in another case to apply de novo review to Daubert issues. The Supreme Court held that the traditional abuse-of-discretion standard governing the admission or exclusion of evidence was appropriate in such cases.
- Learned Hand, Historical and Practical Considerations Regarding Expert Testimony, 15 Harv. L. Rev. 40, 54 (1901).
- Kumho Tire, 1999 WL 1542455, at * 10 (1999) (referring to "broad latitude").
- Michael H. Gottesman, From Barefoot to Daubert to Joiner: Triple Play or Double Error?. 40 Ariz. L. Rev. 753 (1998) Georgetown Professor Gottesman argued Daubert on behalf of the plaintiffs.
- Id., at 775.
- Kumho Tire, at * 15 (1999).
- Id., at * 14 (1999).
- Philip Morris, Inc. v. Harshbarger, 159 F.3d 690, 673 (1st Cir. 1998) [Philip Morris II] (quoting a Massachusetts legislator).
- Philip Morris, Inc. v. Harschbarger, 122 F.3d 58 (1st. Cir. 1997) [Philip Morris I].
- See Williamson County Regional Planning Comm'n v. Hamilton Bank of Johnson City, 473 U.S. 172 (1985).
- Philip Morris II, 159 F .3d at 676-77.
- Id., at 679.