WASHINGTON -- In a host of cases with the potential to drain state coffers, the U.S. Supreme Court in its recently concluded 1990-1991 term appeared to give states victories with one hand and take them away with the other.
Seemingly contradictory rulings by the court, however, may rest on fine points of law or interpretation. But those fine points often translate into big money for state treasuries.
In West Virginia University Hospitals Inc. v. Casey, for example, the court ruled that hospitals successfully challenging state Medicaid reimbursements are not entitled under federal civil rights law to recover expert-witness fees from state governments. The court there said the law contained no such provisions.
But in Dennis v. Higgins, the court said people who successfully challenge the legality of state taxes may use federal civil rights law to collect attorneys' fees and damages from the governments that imposed the taxes. The court rested its ruling on its interpretation of both the civil rights law and its decisions in cases involving the Constitution's commerce clause.
Even the hospital case was only a partial victory for states. The court held that states may be liable for attorneys' fees in Medicaid cases. And because the court decided the case based on interpretation of a federal statute rather than on constitutional grounds, Congress could reverse the ruling by amending the law to allow recovery of witness fees.
Perhaps the biggest blow to state coffers came in James B. Beam Distilling Co. v. Georgia. The court ruled that its decision on the constitutionality of state taxes should be applied retroactively, potentially exposing municipalities to a refund liability estimated at between $6 billion and $15 billion.
The court held that when it announces a new rule of federal law and applies the new rule to litigants in that case, other courts must apply the rule retroactively.
The court's ruling in the Beam case, read side by side with a ruling issued the same day in Lampf Pleva Lipkind Prupis & Petigrow v. Gilbertson, also could have an impact on the municipal market in a more direct way -- ironically shielding officials from liability for shady bond deals.
In Lampf Pleva, the court abandoned the practice of nine U.S. circuit courts of appeal, selecting Section 9(e) of the 1934 Securities Act as the statute of limitations for private actions under the Securities and Exchange Commission's Rule 10b-5. As a result of the ruling, the statute of limitations now is one year from discovery of fraud, so long as it is not more than three years from the underlying violation.
Prior to the ruling, investors alleging fraud in defaulted bond deals had relied on state laws, many of which gave investors six years to file suits after discovering possible fraud.
Robert B. McCaw, a partner with Wilmer, Cutler & Pickering in Washington, said the court's ruling in the Beam case means the statute of limitations announced in Lampf Pleva will have an impact on pending cases.
"It seems to me indisputable that when you read Lampf Pleva along with James Beam, you get full retroactive application [of the statute of limitations] to pending cases," he said.
The new rule may result in the dismissal of many actions pending in federal courts, Mr. McCaw said. But he added, "It's difficult to say that the investors are just out of luck."