March 25, 2014 United States Supreme Court opinions

United States v Quality Stores, Inc.

Quality sought a refund of Federal Insurance contribution (FICA) payments made on severance payments to employees as part of downsizing in a bankruptcy. The bankruptcy court ordered the refund and the 6th Circuit affirmed. The Court, with Justice Kagan recused, resolved a circuit split and reversed. It held the FICA definition of wages in broad and includes all remuneration for services unless exempted. Here, the severance payments were remuneration and arose from services performed during employment. Thus, they are wages. The Court noted that Congress has exempted certain severance payments in the past, but, has not exempted them since 1950 and that decision should be given effect. The Court held that a provision in the income tax withholding statute which treats certain dismissal payments as if they were wages did not change the reality that severance payments generally are wages and the provision in any event was included to protect taxpayers from large tax assessments after receiving certain supplemental unemployment payments. The court finally noted this decision serves administrative efficiency by treating severance payments as wages for both FICA and income tax withholding purposes.

Lexmark International, Inc. v Static Control Components, Inc.

Static sued Lexmark for false advertising under 15 USC 1125(a). The district court dismissed on prudential standing grounds. The 6th circuit, noting a three way split of authority, adopted a minority approach and applied a reasonable plaintiff standard. It held Static met the standard and remanded for further proceedings. The Court resolved the split of authority and affirmed. It first rejected “prudential standing” as a free standing limit on plaintiff’s right to have their case heard reasoning that the cases relied upon by lower courts all dealt with statutory causes of action and thus the issue was always whether Congress authorized the plaintiff to sue not whether it was wise to do so or prudent to hear the case. The court noted that the literal text of 1125(a0 authorized virtually anyone to sue. It held this was not a correct reading based on the background principles that that statutory causes of action are limited to plaintiffs within the zone of interests protected and causes of action usually require proximate causation. Here, the Court held that under the Lanham’s Act’s explicit set of interests in 15 USC 1127, false advertizing was within the zone of at least the interest in preventing injury to business reputation or sales and proximate causation limited the scope of coverage to those acts which have a close enough connection to the alleged false advertising. The Court rejected the three approaches developed below noting the balancing test treated zone of interest and proximate cause as mere factors and the test led to inconsistent results, that the bright lien rule limiting suits to direct competitors is inconsistent with eh actual text of 1125(a) and the reasonable plaintiff rule substitutes reasonable interests for the actual interests protected by the statute. Thus, the Court directly applied the zone of interest and proximate cause principals and held there was standing as the complaint alleges injury to business reputation and sales and causation is supported by the allegations that Lexmark accused Static of illegal activity and, given the limited nature of the products here (microchips controlling refurbished Lexmark toners), injury to Static can be seen almost one to one in reduced sales of refurbished cartridges made by Statics customers.

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