SCOTUS: A Recap Of The October 2013 Term

Friday, October 24, 2014 - 15:28

The Editor presents the following discussion based on a CLE program hosted by Akin Gump Strauss Hauer & Feld LLP and UCLA Law. The program was entitled “A Recap of the Decisions of the Supreme Court of the U.S. 2013-2014 and Forecast for 2014-2015,” and features speakers Rex S. Heinke, Co-Head of the Supreme Court and Appellate practice at Akin Gump, and Adam Winkler, Professor of Law at UCLA. Every term, Akin Gump’s Supreme Court practice participates at both the petition and merits stages in the Supreme Court to obtain or resist Supreme Court review, to organize amicus curiae efforts, to file amicus briefs and to litigate cases through both briefing and oral argument.

Winkler: There’s been a longstanding debate about whether the Roberts Court is business-friendly. While there are different points of view, from an academic perspective, it’s pretty clear that the current Justices lean decidedly in favor of business interests.[1] This term, business interests generally prevailed, but in numerous cases the Court adopted a more narrow approach than business interests wanted. The Court was also generally deferential to administrative agencies’ interpretation of their statutory authority, which often works against business interests.

Heinke: I have a couple of general thoughts on the Court last term. The first is to note that 66 percent of the judgments were unanimous, which is the highest since the end of the Second World War. There were only 10 cases that were decided on a 5-4 basis, that’s 10 out of 70 cases. So there were very few disagreements relatively speaking and a high degree of unanimity. Now that’s a little misleading because it doesn’t mean that the Justices agreed on how they got there; it just means they agreed on where they ended up. My other general thought is that the Justices are continuing a very clear pattern: if a case was decided 5-4, you tell me how Justice Kennedy voted and I’ll tell you who won – because he was in the majority on every one of the 5-4 decisions.

Now, coming to specific cases, starting with one involving the Recess Appointments Clause: The National Labor Relations Board v. Noel Canning (one of the 5-4 decisions). The NLRB has five members, and President Obama appointed three members under the Recess Appointments Clause. If those members were improperly appointed, everything the NLRB did while they were members would be invalid. The Constitution says a president has the power “to fill up all vacancies that may happen during the recess of the Senate by granting commissions which shall expire at the end of their next session.” So there are three questions in the Canning case: First, what is a “recess,” and must it be an inter-session recess, or can it be an intra-session recess? The Court said that you can have either one, that any kind of recess is a recess. Next the Justices said that presumably there is no recess if it lasts for fewer than ten days. That’s not in the Constitution; they based that finding on historical practice. In fact, attached to the decision is a list of every recess appointment every president ever made in the country’s history.

The second question was: When do vacancies have to happen? Do they have to happen during the recess, or can they happen while the Senate is in session? The Court said vacancies can happen in either circumstance. The outcome was not as good for the President on the third question: What is a recess?  The Court looked at what the Senate calls pro forma recesses, which are recesses during which virtually nobody is there and every once in a while they call a roll; they can transact business by unanimous consent, but ordinarily nothing gets done. The Court said this is not a “recess,” so the Senate, if it wants to, essentially can stay in session all the time and thereby eliminate the President’s power under the Recess Appointments Clause.

Harris v. Quinn (the union fee case) and McCutcheon v. Federal Election Commission (regarding limits on aggregate political contributions) were both 5-4 decisions, with Roberts, Scalia, Kennedy, Thomas and Alito comprising the majority. If you get past the hot-button cases and look at what I’ll call more run-of-the-mill cases, the Court is all over the place. The 5-4 split completely breaks down: in the laches and copyright case, the dissenters were Breyer, Kennedy and Roberts; while, if you look at a case called Lawson v. FMR LLC (a 6-3 decision on the scope of the Sarbanes-Oxley Act), the dissenters were Sotomayor, Kennedy and Alito.

Winkler: I’ll talk about one of the most high-profile business cases, which nicely captures how business interests prevailed notwithstanding that those victories were not nearly as bold and aggressive as they might have been. In Burwell v. Hobby Lobby Stores, Inc., a closely held company, Hobby Lobby Stores, sought to be exempt from the Affordable Care Act’s requirement that businesses with fifty or more employees offer qualifying health insurance plans.  To be a qualifying health insurance plan under the law and regulations, you have to cover various forms of birth control. Hobby Lobby Stores, which was owned by a family opposed to certain forms of birth control, sued seeking an exemption under the Religious Freedom Restoration Act (REFRA) saying that it violated their religious beliefs to provide this kind of birth control through their health insurance. The case made a lot of press largely for the question of whether corporations are people with religious beliefs. The Court ruled 5-4 to provide an exemption for Hobby Lobby Stores from the birth control mandate. The first question the Court had to face was whether the corporation was a person under the law and under REFRA. The Justices had no difficulty with this question because the Dictionary Act, a federal law that defines how terms will be interpreted across federal statutes, provides that unless otherwise indicated the word “person” in a statute does apply to corporations and other kinds of business entities. The more difficult questions pertained to whether this corporation had sincerely held religious beliefs that could provide a basis for an exemption under REFRA. The Court answered yes: that the corporation could take on the religious beliefs of its owners; that the owners’ religious beliefs were being violated; and, since it was their corporation, the exemption would be available.

This was especially so, the Court said, in a closely held corporation (as opposed to a publicly held corporation) where it’s easier to identify the owners’ religious beliefs with the activities of the entity itself. The Court said that to insist, in this particular case, that the company offer this kind of health insurance was not the least restrictive alternative available to the government, since it has devised other ways (such as government subsidies) to ensure that people can get access to birth control. This has left a series of open questions about what kinds of companies can obtain what kinds of exemptions from generally applicable laws. Some people have interpreted the opinion to mean that a publicly held corporation with many shareholders would not be entitled to such an exemption. Yet the Court didn’t say categorically that a publicly held corporation could not seek exemptions from generally applicable laws.

Another big open question is, regardless of the type of company, what kinds of exemptions might companies have access to? If, for instance, Congress were to pass a law banning discrimination on the basis of sexual orientation, could companies seek exemptions from that law? We’ve seen in some states similar claims from firms in wedding-related businesses. Could companies get exemptions from certain kinds of environmental laws if the owners of closely held companies thought that these laws violated their religious beliefs? My own suspicion is that Hobby Lobby is a “for this day and on this train only” kind of case that the Court is not likely to expand for generally applicable laws in many cases.

Heinke:  Halliburton Corp. v Erica P John Fund Inc. is a securities class action case that turned on the presumption of reliance based on an efficient securities market. First, does that presumption still exist and, second, if it does exist, can a defendant rebut the presumption at class certification? The Court refused to overturn the presumption that it had recognized in 1988 in Basic Inc. v. Levinson. The whole idea of Basic is that, if you have an efficient marketplace, then (1) everybody who is buying or selling in that market relies on the market price and (2) the market price incorporates any alleged misrepresentation. If somebody makes a misrepresentation that is publicly disseminated, the market price reflects that and all other publicly available information. If you then as an investor purchase that stock at the market price, you have in effect relied upon the misrepresentation because it is reflected in the market price. The Court’s Halliburton opinion has something for everybody. For plaintiffs, the presumption still exists, albeit a rebuttable presumption but it still exists in securities class actions. For defendants, the presumption is still there, but the good news is that it can be attacked at the class certification stage. At that stage, a defendant can attempt to show that the market is not efficient or, for some other reason, that the Basic Inc. presumption shouldn’t be applied. Halliburton is one of several cases in which the Court this last term was confronted with an attack on a prior decision and found a way to get the case decided without overruling the prior decision.

Winkler: Turning to how the Court addressed questions of what we might broadly refer to as “access to the courts”: The Justices restricted access in class action cases and expanded access under some other laws. I will first talk briefly about Daimler AG v. Bauman, in which Argentinian plaintiffs attempted to sue a German company in California based on human rights violations that had occurred in Argentina. Daimler’s only connection to California was through a subsidiary that did substantial business in California. The Justices held that the court in California could not exercise jurisdiction over Daimler.

This case dealt with the difference between general and specific jurisdiction. The idea of specific jurisdiction is that a court can assert jurisdiction because of actions that occurred within its jurisdiction (so if there is a car accident within that jurisdiction, the court will have jurisdiction over a litigation related to that car accident). None of the events in Daimler took place in California, yet there was an effort to assert general jurisdiction, meaning the ability to sue someone for any purpose on any matter because her or his connections with that jurisdiction are so extensive. The Court found that the facts did not support an exercise of general jurisdiction over Daimler because it was a German company that did not have many contacts in the state, either directly or through subsidiaries. Simply selling a product in a state does not give the state general jurisdiction over things that occur outside of the state.

The Court held that general jurisdiction should be limited to places where the company is headquartered, incorporated or has its principal place of business, though the Court recognized the possibility of exceptional cases. This was an important decision because it enabled companies to better limit their exposure to general litigation. There’s not much you can do about specific jurisdiction if you’re doing business in a state in which you breach a contract or get sued over a car accident; but Daimler will help companies that want not to be subject to general jurisdiction in a consumer-friendly place like California.

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Still dealing with access to courts, there were two important cases addressing unfair competition or false or deceptive advertising under the Lanham Act. If Daimler made it harder to sue, and Halliburton made it harder to get class certification, in the Lanham Act cases the Court actually made it easier for people to sue. The two cases are Lexmark International v. Static Control Components and POM Wonderful LLC v. Coca Cola. Lexmark is a company that dominates the business of refilling computer printer cartridges; they try very vigorously to put out of business companies that do not use their cartridges or refilling service. Static Control Components is a company that manufactures a static control chip that eliminates the necessity for third-party users to have Lexmark’s refilling processes, so Lexmark sent advertisements to Static Control customers saying that it was illegal to use these chips. That was not true; it was not illegal to use the chips, so Static Control sued for damages alleging unfair competition and false advertising under the Lanham Act.

The Court upheld Static’s right to sue under the Lanham Act, and held that under the Lanham Act a plaintiff need only show that it had suffered an injury to commercial interests in sales or in reputation that flowed directly from the defendant’s deception. Here Lexmark had explicitly disparaged Static’s product, so reputational injury flowed directly from Lexmark’s false ads. The Court did say that indirect harms would not be a basis for standing. The difficulty here is that the Court provided very little guidance for future courts about how to distinguish between a direct harm and an indirect harm. Courts are going to have to engage in a proximate-cause type of inquiry to try to figure out whether the alleged harm was direct or indirect. An interesting twist here is that the Lanham Act does not provide this kind of benefit for individual consumers who buy a product that has been falsely or deceptively advertised; the law is really about commercial interests to reputation or sales and, therefore, only empowers other businesses to sue.

The other case under the Lanham Act is POM Wonderful LLC v. Coca Cola, an important case on false or misleading product labeling claims. POM sued Coca Cola because Coke labeled its product as having a pomegranate/blueberry-flavored blend of five juices, but it turned out that the blend had remarkably little pomegranate or blueberry juice. In fact, it had less than one percent by volume of those juices combined. POM sued saying this was false advertising. Coke said you can’t sue us because under the federal Food and Drug Act, we’re allowed to label a juice by the name of the flavoring even if it’s not significant by volume. Coke said we’ve got federal regulations that say we can do this, so your Lanham Act claims fail. Interestingly, the Court disagreed. The Court said that just because federal regulations allow a certain activity, it does not guarantee immunity from litigation under the unfair competition provisions of the Lanham Act.

Heinke: Now I’ll discuss two other business-related cases, starting with Atlantic Marine Construction Co. v. U.S. District Court (Western District of Texas). The lesson in this case is: If you have a forum-selection clause in your contract, the Court is going to enforce it and enforce it vigorously, so don’t allow such a clause unless you’re willing to live with it. This was one of the Court’s unanimous decisions, with virtually no consideration of whether the clause relates to where the parties or the transaction are located. The Court says that the clause should be “given controlling weight” in all but the most exceptional cases and that private-interest factors (like where the plaintiff decides to sue) are irrelevant, while public-interest factors are still relevant but are almost always going to be overridden by the forum selection clause. The Court does not say what the exceptional cases are, so that remains to be litigated.

The second business-related case, of great significance in California in the entertainment industry, is American Broadcasting Companies, Inc. v. Aereo, Inc. Aereo had a very interesting technology. An Aereo customer could go on the Internet and select a program. Aereo then turned on an antenna that picked up the over-the-air broadcast, then sent the broadcast material to its equipment, which put the material on a hard disk and then forwarded the programming to the customer via the Internet just a few minutes behind the over-the-air broadcast. Two issues arose as to whether a copyright holder could prevent that kind of activity under the Copyright Act: Was the copyrighted programming being performed by Aereo, and if so, was it being performed publicly? Aereo’s non-performance argument failed because of the failure of a similar argument relating to cable TV back in the 1960s. Aereo’s real defense was that its performance was not done publicly because Aereo used only a single antenna devoted to a particular subscriber. Rejecting that argument, the Court said that, viewed in terms of Congress’s regulatory objectives, the fact that Aereo transmits using a slightly different method than is used by the cable TV system doesn’t make any difference for copyright purposes; therefore, this was not only a performance but a public performance under the Copyright Act. Aereo switched off its system the day after the Court’s decision.

Winkler: The Court had two major cases dealing with how the Environmental Protection Agency had interpreted the Clean Air Act to justify new and different kinds of regulation. In EPA v. EME Homer City and Utility Air Regulatory Group, the Court held that the EPA did not exceed its authority with a proposed regulation that would require states to limit air pollution that contributes to unhealthy air in downwind states. Here, the EPA was interpreting a statute stating that, if a state contributes significantly to the pollution in a downwind state, then the upwind state has to take mitigating acts. Congress had thought that, if State A was 80 percent responsible and State B was 20 percent responsible, then each state should bear that same proportion of the mitigation cost. The EPA basically said that this arrangement just doesn’t work because the wind moves around, so the EPA devised a multipart test to figure out what were the responsibilities and duties of upwind states. A component of the multi-factor test was the cost of mitigation. Nothing in the EPA’s statutes says you can look at cost as a factor; the statute really does seem to envision apportionment of blame based on contribution. It was no surprise, therefore, that the D.C. Circuit held that the EPA regulations were a violation of the statute and that the EPA was required to apportion state-by-state responsibility based on contribution. The Court reversed 6-2, with a Ginsburg opinion that is a robust example of Chevron deference. The Court said, it is difficult to achieve Congress’s aims in the way Congress imagined, so we’re going to allow the EPA to set policy here and adopt this multipart test with this cost-based formula.  

A second EPA case, Utility Air Regulatory Group v. Environmental Protection Agency, dealt with the EPA’s effort to regulate greenhouse gases from stationary sources. This case mostly upheld the EPA’s interpretation of its statutory mandate, but the Court rejected the EPA’s broadest view of its power over greenhouse gas emissions. The EPA had said that it could regulate any greenhouse gas emissions under the statute from any stationary sources, be they large industrial polluters or even small polluters like a shopping mall. The Court rejected that broad view but allowed the EPA to impose greenhouse gas regulations on any polluter that the EPA otherwise had the authority to regulate for other forms of pollution. This meant that large industrial polluters (which the EPA already had the ability to regulate) could now be regulated for their greenhouse gas emissions, but smaller stationary sources of pollution (like the shopping mall), which the EPA did not otherwise have authority to regulate for other forms of pollution, could not be reached for their greenhouse gas emissions. This is a case in which the judgment is very different from the opinion. Justice Scalia wrote an opinion that was harshly critical of the EPA and its efforts, accusing the EPA of trying to impose its mandates on a democratic society in an example of government gone awry, and calling the EPA’s interpretation patently unreasonable, outrageous even. Nonetheless, by upholding the EPA’s regulatory authority in the main, the result was to affirm the EPA’s ability to regulate most stationary sources of greenhouse gas emissions. At the end of the day, both of these cases recognized the EPA’s authority.


[1] Professor Winkler mentioned an academic study that looks at all the Court Justices and their votes going back to 1946. Of the 36 Justices who served on the Court since 1946, five of the 10 most business-friendly Justices are currently sitting on the Court. See Lee Epstein et al., "How Business Fares in the Supreme Court," 97 Minnesota Law Review 1431 (2013). Another metric is the success rate of the U.S. Chamber of Commerce in the Court. Overall, the Chamber of Commerce wins 70 percent of the cases in which it files briefs either as a party or as an amicus. In the October term 2011, they went 7-0; in the October term 2012, they went 14-3; this year the Chamber of Commerce was 11-5.

 

Please email the presenters at rheinke@akingump.com or winkler@law.ucla.edu with questions about this discussion.