U.S. Supreme Court Overview: Highlights Of The October 2011 Term And A Preview Of October 2012

Editor: What were some of the Supreme Court’s noteworthy decisions during its October 2011 term?

Silbert: The term was dominated by the Affordable Care Act case, but there were a number of other significant cases as well. The Court continued to enforce its longtime federal policy favoring enforcement of arbitration agreements as it did the previous term in the AT&T Mobility case. It also upheld Congress’s authority to restore copyright protections to works that were previously in the public domain against Copyright Clause and First Amendment challenges.

An interesting decision for business in the 2011 term was the GlaxoSmithKline case, in which the Court applied a functional approach to the Fair Labor Standards Act (FLSA) and held that pharmaceutical sales reps, or “detailers,” were outside salespersons and were therefore not entitled to overtime pay.

One of the interesting things about that decision was that, although it was a split decision on the ultimate question as to whether the sales reps were entitled to overtime pay under the FLSA, the Court was unanimous in its holding that no deference was due to the Department of Labor’s interpretation of its own regulation, which it advanced in an amicus brief.

The Court reached that result largely because of notice issues. The Department of Labor’s argument that the outside sales exemption didn’t apply would have imposed massive liability on the pharmaceutical industry. Its argument was based on a regulatory interpretation that was first announced in 2009 in an amicus brief by the agency after the industry had been engaging in this practice for decades.

The Court was concerned about the unfair surprise. It said that under these circumstances, it would not defer to the agency’s belated interpretation of its own ambiguous regulation in a legal brief.

This was significant because the Department of Labor has been accused of regulating by amicus instead of through notice and comment rulemaking. In other words, it followed a practice of issuing an ambiguous regulation, and then instead of giving the industry notice of its interpretation of the regulation through ordinary administrative law procedures, it simply announced its interpretation in the context of litigation and then tried to hold businesses liable. The Court was rightly concerned about that practice and in GlaxoSmithKline dealt the Department of Labor a pretty serious blow.

Another closely watched case was Arizona v. United States, the immigration case in which the Supreme Court held that federal law preempted several provisions of a state law intended to deter unlawful immigration into Arizona. However, the Court did allow Arizona to continue checking immigration status under another provision of the state law, subject to challenges later on after that provision is interpreted and applied by the state.

Editor: Tell us what we can anticipate in the October 2012 term.

Silbert: The 2012 term is still taking shape. The Court has already granted about 30 petitions, which is less than half of what we’re likely to see for the full term. There are already some notable cases.

One of them is Kiobel vs. Royal Dutch Petroleum, which actually was argued last term. It’s commonly referred to as Kiobel Two because in the October 2011 term the Court heard arguments in Kiobel on the issue of whether the Alien Tort Statute applies to corporations or only to individuals. A similar question was raised in Mohamad v. Palestinian Authority, which was argued the same day as Kiobel. In Mohamad, the Supreme Court held that the Torture Victims Protection Act did not apply to corporations.

Instead of deciding that question in Kiobel, as everyone expected, the Court issued a somewhat surprising order, putting the case over to the October 2012 term and ordering the parties to brief an additional question, namely whether the Alien Tort Statute applies to extraterritorial conduct. I and some of my colleagues in the Appellate group here at Weil filed an amicus brief on behalf of the European Union in support of neither party. In it we set out the limited circumstances in which extraterritorial jurisdiction would be permissible under international law, which the Alien Tort Statute expressly incorporates. Kiobel Two will be a significant case that many people will be watching.

There are also a couple of interesting Article III cases already on the docket. One of them asks whether a covenant not to sue a competitor for trademark infringement deprives federal courts of Article III jurisdiction over a competitor’s challenge to the validity of the trademark. In that case, Nike sued a company claiming that its shoes violated Nike’s trademark. One of the defenses that was asserted was that the trademark is invalid. Nike argued, and the Second Circuit held, that the covenant not to sue deprives the courts of Article III jurisdiction because there’s no longer any live case or controversy with respect to infringement.

Another Article III case is Genesis HealthCare vs. Symczyk. The question there is whether a punitive collective action under the FLSA becomes moot if no additional plaintiff has opted into the suit and the defendants offer to satisfy the lone plaintiff’s claim.

A collective action under the FLSA is different from a class action under Rule 23 (where typically everyone is included in the class unless the covered persons opt out), but in an FLSA collective action, additional plaintiffs are required to opt into the suit in order to be covered. In Genesis HealthCare a single plaintiff asserted violations of the FLSA, and other similarly situated persons had the option of opting into the suit, but so far none of them has done so. The defendant, Genesis HealthCare, has offered to satisfy the plaintiff’s claim in full and pay her all the damages to which she claims she’s entitled. Its view is that this moots the controversy, so there’s no Article III jurisdiction over the merits of the claim. The court of appeals held that the jurisdiction should continue until the plaintiff’s lawyers can determine whether any additional plaintiffs might be willing to join.

There are also some significant class certification cases already on the docket. In the securities fraud context, there is Amgen v. Connecticut Retirement Plan. At issue is whether before certifying a class in a 10b-5 fraud case the plaintiff must show that the alleged misrepresentation was material and, in such a case, whether the defendant can present evidence rebutting the fraud on the market theory if a class is going to be certified based on that theory. In the Basic v. Levinson case, the Court held that if class members in a securities fraud case were required to prove reliance individually it would be impossible to certify a class because the reliance issues would predominate and would present questions of individualized rather than class-based proof. However, if the suit is proceeding on a fraud on the market theory, then reliance could be presumed for the class because the fraud on the market theory asserts essentially that in an efficient market every material misrepresentation will be factored into the price of the stock, and so any class members who are relying on the integrity of the market will inevitably rely on the misrepresentation because the misrepresentation, if it’s material, will have affected the price of the stock that they purchased.

The Amgen case asks whether, before the class can be certified, the plaintiffs who are asserting such a theory must demonstrate that the misrepresentation that they’re alleging was in fact material, because only material misrepresentations affect the price of a stock in the fraud on the market theory. It also asks whether, before class certification, the defendant has the opportunity to put in evidence to rebut the fraud on the market theory -- to show, for example, that the market for this stock was not efficient at the time that the alleged misrepresentation was made.

Another class certification case is in the antitrust context. This is Comcast Corporation v. Behrend, which presents a question of whether a district court can certify a class without resolving whether the plaintiff has offered admissible evidence that damages can be awarded on a class-wide basis.

Editor: Are there any other cases that you would like to mention?

Silbert: We’ll know more about the October 2012 term after the long conference at the end of September. Now the Court is in summer recess. There is an interesting pending cert petition in DaimlerChrysler AG v. Bauman. If the Court agrees to hear the case, and it’s certainly a contender for a cert grant, it would give the Court an opportunity to decide whether a federal court can exercise general personal jurisdiction over a foreign corporation just because the corporation has an indirect subsidiary that performs services on behalf of the foreign corporation within the foreign state. An indirect subsidiary is a subsidiary of a subsidiary. This would test how far the Court is willing to extend its decision last year in Goodyear Dunlop v. Brown, which held that foreign corporations can’t be sued in state courts on claims that are unrelated to any activity they took in that state.

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