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Pocketbook Justice

Supreme Court Cases That Could Affect Your Wallet

When the U.S. Supreme Court opened its 2009 term on Oct. 5, there was of course one conspicuous change: Sonia Sotomayor had taken her place as the first Hispanic justice, filling the seat of the retired David Souter. How this historic switch may affect the court, which according to many legal experts has become increasingly pro-business, will receive close attention from the media and the legal community this fall as oral arguments are heard, and again next spring when opinions are released.

The Supreme Court will decide a number of cases with potentially serious consequences for older Americans, especially for their wallets. These matters, which AARP has addressed or plans to address in friend of the court briefs, deal with everything from debt collection and bankruptcy to securities fraud and mutual fund fees. For instance, NRG Power Marketing v. Maine Public Utilities may affect the cost of consumers’ utility bills, of special concern for those with low or fixed incomes. Perdue, Governor of GA v. Kenny A. deals with what constitutes reasonable attorneys’ fees. And Conkright v. Frommert will zero in on questions related to the Employee Retirement Income Security Act of 1974 (ERISA), a federal law that governs the administration of most private pension and health plans. One issue under review: Is a retirement plan administrator or a court better suited to decide who gets how much, and when, under a pension plan with disbursement terms that employees dispute?

One important case involves an intellectual property dispute that at first glance has no relevance for most older Americans. Technically, Bilski v. Kappos concerns a very narrow question: May someone patent a method of hedging risks in trading commodities, or does such an invention, as an examiner with the U.S. Patent and Trademark Office ruled, merely manipulate an “abstract idea” and solve a purely mathematical problem, making it unworthy of patent protection? Hardly the equivalent, it would seem, of court battles over advance directives or other issues typically linked with age.

Still, the outcome of Bilski may end up saddling consumers with higher fees for services ranging from financial planning to medical tests. The reason: The case raises the broader issue of whether certain business methods and mathematical formulas can be patented.

If the high court says yes, the cost of patent protection may, for example, be passed along to those hoping to use certain retirement plan and tax strategies. Similarly, if one doctor controls the method for diagnosing a disease, patients of other physicians may be denied access to that method—a situation that a trio of consumer groups warned in a friend of the court brief could inhibit timely and appropriate medical care.

Other cases awaiting consideration—including a pair of securities-related matters—are more straightforward. In fact, Jones v. Harris Associates L.P. prompted a Wall Street Journal columnist to observe that this case is a rarity for one notable reason: It’s seldom, he wrote, that anything the Supreme Court considers hits people “right in the pocket.”

But this case may affect the wealth of those 93 million Americans invested in mutual funds. It addresses the way fund companies decide what fees to charge and whether some of those fees are excessive—a matter important to every investor because even slightly higher fees can significantly lower total returns. By way of example, a Department of Labor study compared two 401(k) plans with starting balances of $25,000, each earning 7 percent over 35 years without additional contributions. A plan with fees and expenses of 0.5 percent annually and a second plan with 1.5 percent will yield an account balance difference of $64,000, or 28 percent, the study found.

Similarly, Merck & Co. v. Reynolds affects investors because it addresses the statute of limitations in securities fraud cases. This battle arose out of the drugmaker’s false and misleading statements about its best-selling painkiller Vioxx, which was taken off the market in 2004 after being linked to increased risk of cardiovascular problems. Many Merck shareholders saw the value of their holdings plummet following revelations that the firm had misrepresented the drug’s safety and commercial viability. Investors sued Merck and some officials for alleged violations of securities laws. Now the court will address whether a group of those plaintiffs waited too long to sue, given early indications in the media and from within the Food and Drug Administration of problems with Vioxx.

Two consumer rights cases awaiting consideration address other money issues now all too familiar: debt collection and bankruptcy.

Jerman v. Carlisle, McNellie, Rini, et al was triggered by a debt collector erroneously telling a homeowner that she faced foreclosure and had 30 days to dispute her debt, in writing. The homeowner sued the debt collection agency for allegedly violating the Fair Debt Collection Practices Act (FDCPA), claiming the firm used deceptive business practices because the act doesn’t require disputes to be in writing. The debt collector claimed that its mistake was not intentional, giving the firm protection from liability under a provision of the FDCPA—a defense the Supreme Court will consider.

The case is important because last year alone the Federal Trade Commission received more than 104,000 complaints under the FDCPA about the alleged deceptive, unfair or abusive practices of debt collectors. This case could clarify for debtors what constitutes predatory collection practices.

The central issue in Milavetz, Gallop & Milavetz v. United States is whether a law barring attorneys from counseling their clients to incur additional debt before filing bankruptcy is a violation of those attorneys’ First Amendment rights. With bankruptcy rates surging, the inability to get unfettered legal advice could further jeopardize someone’s already teetering economic security.

There is more riding on this session than financial matters. For example, Stolt-Nielsen S.A. v. Animalfeeds International addresses whether a court can order disputes slated for arbitration between two parties to go forward as a class action if the disputes involve contracts that don’t specifically stipulate anything about class actions. Because arbitration clauses are now standard in contracts for everything from cellphones to nursing home admissions, the case will have important consequences for consumers.

All these cases bear watching, although oral arguments may provide few real clues about what the court will later decide. “It’s very difficult to predict the Supreme Court with any certainty ever,” says Stephen Wermiel, adjunct professor at American University Washington College of Law. “And it’s a little harder to predict the court when you have a new justice, even when she fits her predecessor’s ideological slot.”

Overturning the Justices on Age Bias

Cases involving age discrimination received much attention from the nine justices over the past few years. During the last term alone the Supreme Court decided five cases arising under the Age Discrimination in Employment Act (ADEA), including one that made it substantially harder for older workers to prove they’ve been discriminated against because of age.

That much-analyzed case, Gross v. FBL Financial Services, split the court 5 to 4 in June. The case involved Jack Gross, who was 54 in 2003 when, after 28 years of regular promotions and pay raises at FBL in Des Moines, Iowa, he was demoted. Gross sued, claiming violation of the ADEA, and prevailed until the Supreme Court ruling.

“Because of the terrible outcome in last term’s Gross decision, older workers will need to look to Congress first to restore the law to give them at least a fighting chance at prevailing in federal courts,” says Stuart Cohen, senior vice president of legal advocacy at the AARP Foundation.

In October three Democratic congressional committee chairmen introduced legislation aimed at doing just that. The bill, the Protecting Older Workers Against Discrimination Act, would make the burden of proof the same as for workers who claim discrimination based on race or gender.

“I am just one person in this fight, but I know that what happens here will affect many more people than just me,” Gross testified at a hearing on the new legislation. “That is what this is about, making the protection of the law for older people no less than the protection for people of color, for women or for people of different faiths.”

Before the court’s ruling in June, if an employee could prove that age was a factor in an adverse employment decision, the employer then had to show that its actions were valid for a reason other than age discrimination. But as a result of the court’s decision, generally welcomed by business, employees now face the full burden of demonstrating that age was the only reason.

Watch a show about the Gross decision and resulting legislation at beginning Nov. 6.


Alan Green lives in Germantown, Md.