Legal News for Tues 10/8 - SCOTUS Hears Prescription Pet Food Claims, FTX Plans to Repay Billions, EPA New Timeline for Lead Pipe Replacement and State Film Production Tax Credits Stink

Minimum Competence

This Day in Legal History: Great Chicago Fire

On October 8, 1871, the Great Chicago Fire ignited, marking one of the most devastating urban disasters in U.S. history. The fire burned for two days, fueled by dry conditions and wooden structures that dominated the cityscape. It destroyed over three square miles of Chicago, killing around 300 people and leaving 100,000 residents homeless. In the aftermath, the catastrophe highlighted the dangers of poor urban planning and inadequate fire-prevention measures.

The devastation led to a complete overhaul of building codes and fire safety regulations. Chicago introduced stricter fire-resistant building requirements, mandating the use of materials like brick, stone, and iron instead of wood for new construction. The city also improved its firefighting infrastructure, investing in modernized equipment and more efficient water systems.

These reforms had a ripple effect across the country, influencing urban development nationwide. Many U.S. cities adopted similar codes, fundamentally reshaping fire safety standards. Today, much of modern building regulations, including fire codes that require sprinkler systems and fireproof materials, can trace their origins back to the lessons learned from the Great Chicago Fire of October 8, 1871. The event is a lasting reminder of how disasters can drive lasting legal and regulatory changes.

The U.S. Supreme Court recently heard arguments over whether a federal court can continue to oversee a consumer class action against Royal Canin and Purina after the plaintiffs amended their lawsuit to remove federal claims. The case involves claims from pet owners who argue that the companies misled them into believing prescription pet food was required and conspired to inflate prices. Initially filed in Missouri state court, the case moved to federal court after Purina's request.

The companies' attorney, Katie Wellington, argued that federal jurisdiction should remain despite changes to the lawsuit, citing Congress's codification of supplemental jurisdiction principles. However, justices like Elena Kagan and Chief Justice John Roberts expressed skepticism, questioning whether a prior version of the lawsuit, no longer relevant, should dictate jurisdiction. Both seemed to support the companies argument initially but appeared to reconsider after hearing from the consumers' attorney, Ashley Keller, who maintained that the Eighth Circuit correctly returned the case to state court.

The case's procedural history, including its back-and-forth between courts, complicates the jurisdictional question. The justices appeared to struggle with balancing precedents and whether altering the claims should impact the court where the case is heard. The broader question hinges on civil procedure and jurisdiction when a lawsuit is amended post-removal from state to federal court.

The concept of supplemental jurisdiction, which allows federal courts to retain jurisdiction over state law claims if a case initially involves federal claims, even if the federal issues are later removed is central to the companies' argument.

Supreme Court Wrestles With Venue in Prescription Pet Food Fight

FTX has received court approval to begin repaying billions of dollars to customers after its bankruptcy plan was approved by U.S. Bankruptcy Judge John Dorsey. The plan allows FTX to use up to $16.5 billion in recovered assets to repay customers affected by the crypto exchange’s collapse. Under the plan, 98% of customers with claims of $50,000 or less will be repaid within 60 days of the plan’s activation. FTX’s bankruptcy was triggered by founder Sam Bankman-Fried’s misappropriation of customer funds to cover risky bets made by his hedge fund, Alameda Research. Bankman-Fried was sentenced to 25 years in prison, and FTX has been recovering assets ever since.

FTX will prioritize customer repayments over claims from U.S. government agencies like the IRS and Commodity Futures Trading Commission. The company has worked with global liquidators and settled various disputes to move forward with repayments. Some customers, however, are unhappy with the repayment structure, citing the rise in cryptocurrency prices since 2022, which they feel should be reflected in their recovery amounts. Despite these objections, FTX argues that it is not feasible to return the same crypto assets, as they were largely misappropriated.

FTX cleared to repay billions to customers after bankruptcy plan approval | Reuters

The EPA has finalized the Lead and Copper Rule Improvements (LCRI), mandating an accelerated replacement of lead service lines in drinking water systems. The new rule requires replacing 10% of lead pipes annually over a decade, up from the previous 3%, with the process beginning in 2027. The EPA estimates that up to 9 million lead pipes remain in use across the U.S., posing significant health risks, especially to children. The rule also lowers the lead action level in drinking water from 0.015 to 0.010 milligrams per liter, triggering faster public notifications and filter distribution when lead is detected.

The effort is backed by $15 billion from the 2021 infrastructure law, along with additional funding from the Drinking Water State Revolving Fund. It closes loopholes allowing extended replacement times and pressures homeowners to replace privately owned lead pipes. The rule reflects the Biden administration's emphasis on clean water as a priority, though legal challenges to the LCRI are expected. EPA Administrator Michael Regan reiterated that no level of lead in drinking water is safe due to its severe health impacts.

EPA to Finalize Mass Lead Drinking Water Pipe Replacement Plan

And in my column for Bloomberg this week, I talk a bit about a favorite bugbear of mine: film production tax incentives.

California is losing its dominance in the film industry as productions move to other states and countries offering more attractive tax incentives. While expanding California’s film tax credits might seem like an immediate solution, this approach could worsen the competition among states, leading to a "race to the bottom" in offering incentives. Instead, the state should focus on long-term solutions such as investing in infrastructure, green initiatives, and workforce development. These investments would create lasting economic benefits, rather than the temporary boosts provided by film tax credits.

Tax credits for film productions have proven costly, with minimal sustained economic impact. Jobs created during productions are often short-lived, and sometimes the credits are sold, benefiting entities with no connection to the state. In contrast, California could use tax incentives to build shared production facilities and promote eco-friendly practices, lowering production costs and attracting filmmakers.

Additionally, tying tax credits to workforce development through partnerships with educational institutions could create a skilled labor force within California. This would help sustain the industry locally while reducing the state's reliance on temporary incentives to compete with other regions. By investing in long-term infrastructure and labor, California can rebuild its film industry more sustainably.

California Should Look Beyond Film Tax Credits to Boost Industry

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