Monday, June 11, 2007

Compliance with FTC Process Did Not Warrant Removal of State Suit: U.S. Supreme Court

This posting was written by Jeffrey May, editor of CCH Trade Regulation Reporter.

A unanimous U.S. Supreme Court has ruled that cigarette maker Philip Morris was not entitled to remove to federal court a state-court action challenging the company's alleged deceptive and misleading advertising for “light” cigarettes under the Arkansas Deceptive Trade Practices Act.

Philip Morris' compliance with the FTC's testing procedures for tar and nicotine in cigarettes did not permit the tobacco company to remove the case to federal court pursuant to the federal officer removal statute.

A decision of the U.S. Court of Appeals in St. Louis (2005-2 Trade Cases ¶74,901) finding removal proper was reversed, and the case was remanded.

Federal Officer Removal Statute

The federal officer removal statute permits a defendant to remove to federal court a state-court action brought against the “United States or any agency thereof or any officer (or any person acting under that officer) of the United States or of any agency thereof, sued in an official or individual capacity for any act under color of such office” (28 U.S.C. §1442(a)(1)).

However, Philip Morris' compliance with federal laws, rules, and regulations (even if the regulation was highly detailed and even if the conduct was highly supervised) did not by itself fall within the scope of the statutory phrase “acting under" a federal "official,” according to the Court.

Regulator/Regulated Relationship

Despite the FTC's detailed advertising rules, testing specifications, and reporting requirements, the relationship between the FTC and the tobacco company was nothing more than the usual regulator/regulated relationship, in the Court's view. This relationship could not be construed as bringing the tobacco company within the terms of the statute.

Rejected was the tobacco company's argument that its relationship was akin to the relationship between a government contractor and the government. A government contractor might fall within the terms of the federal officer removal statute when the relationship between the contractor and the government was an unusually close one involving detailed regulation, monitoring, or supervision; however, the assistance that private contractors provided federal officers went beyond simple compliance with the law and helped officers fulfill other basic governmental tasks.

Delegated Authority?

The Court also rejected Philip Morris' argument that its conduct went beyond compliance because the FTC delegated authority for testing cigarettes for tar and nicotine to an industry-financed testing laboratory.

There was no evidence of any delegation of legal authority from the FTC to the industry association to undertake testing on the government agency’s behalf. Nor was there evidence of any contract, any payment, any employer/employee relationship, or any principal/agent arrangement, according to the high court.

The opinion is Watson v. Philip Morris Companies, Inc, No. 05-1284, decided June 11, 2007. It will appear in CCH Trade Regulation Reporter, CCH State Unfair Trade Practices Law, and CCH Advertising Law Guide.

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