Many Business Wins In Last Supreme Court Term

Tuesday, August 20, 2013 - 12:16

The Editor interviews Gregory G. Katsas, Partner, Jones Day.

Editor: Tell us about your background and practice.

Katsas: I’m a litigation partner in the Washington office of Jones Day. I handle mostly civil and appellate matters, including a lot of constitutional and administrative law issues and lately many products liability cases as well. I served in the Department of Justice during the Bush administration, including as head of the Civil Division.

Editor: Were you involved in many of the Supreme Court cases decided during its last term?

Katsas: About ten of them, either in working on merits briefs or amicus briefs or in mooting advocates. Two others involved cases or issues that I worked on when I was at the DOJ.

Editor: How well did business interests fare overall?

Katsas: Quite well. By my count, in what I take to be the ten most important business cases of the term, I would say business interests won in seven, lost in two and had mixed results in one.

Editor: What was the most important business case?

Katsas: Probably Kiobel v. Royal Dutch Petroleum Company, a case construing the Alien Tort Statute. That statute creates federal subject-matter jurisdiction over tort claims based on alleged violations of international law. Defendants have tried to limit the statute in various ways by arguing that corporations can’t be defendants, or there can’t be aiding-and-abetting liability, or the statute has no extraterritorial effect. The Supreme Court adopted the last of those views and limited the statute just to claims based on conduct inside the U.S. or maybe on the high seas as well. That’s a position that we had urged in the Bush administration, and it’s one that will shut down many of the most extravagant ATS cases to which businesses have been subjected.

Editor: Tell us about the class action cases.

Katsas: There were three significant ones last term. The Comcast case held that in deciding class certification, the federal courts must consider whether damages are provable on a class-wide basis – even if the inquiry overlaps with the damages questions on the merits. This puts more teeth into the commonality and predominance requirements for class certification, building on the very important Walmart decision from a couple of terms ago.

A second nice win for business in this area was Standard Fire v. Knowles, where the Court held that plaintiffs can’t prevent removal of a class action from state court to federal court under the Class Action Fairness Act by attempting to stipulate in state court that they won’t seek damages in excess of the amount-in-controversy requirement for removal.

The Amgen case was a loss for business interests. The Court held that when deciding whether to certify a securities class action, the courts don’t need to consider materiality, a question that it thought went only to the merits. That makes it somewhat easier to certify securities class actions, which of course gives plaintiffs’ lawyers huge leverage for settlement. One interesting feature of the case is that four justices – Scalia, Kennedy, Thomas and Alito – all expressed narrow views of or considerable skepticism about the “fraud on the market” theory.

Editor: What about the major employment, preemption and arbitration cases?

Katsas: In all these areas there were significant wins for business. There were two reasonably important employment discrimination cases. Nassar held that Title VII retaliation claims are governed by traditional causation standards, so the employee claiming the retaliation has to prove that any retaliatory motive made a difference in whatever adverse employment action was taken. That’s the same standard that governs retaliation claims under related federal statutes like the ADEA, and it is not the lower causation standard that governs discrimination claims under Title VII.

Vance, the second big employment case, addressed the question of who is a “supervisor” for sexual harassment purposes. That’s important because acts taken by a supervisor can subject the corporation to vicarious liability. The court narrowly defined the category of “supervisor” to be only an individual who can take tangible employment actions against the alleged victim – things like hiring, firing, reassignment – and a “supervisor” does not include anybody who can, in some looser sense, direct the work of another employee.

As to preemption, there was an interesting case called Bartlett. In one respect it was very straightforward: it just confirms that federal law preempts design-defect claims against drug manufacturers. If the tort claim is based on a theory that the drug company should have changed either the drug itself or the label on the drug, that conflicts with federal law which prohibits changes to the composition or label of a drug except as approved by FDA. So, there is preemption because it is impossible to comply with both federal and state law. What was interesting was the plaintiff’s remarkably broad argument against preemption: the plaintiff argued that a drug company can comply with federal and state law in one of two ways: sell the drug and just pay tort damages, which is a pretty unattractive option, or simply choose not to sell the drug and go out of business, which is an even worse option. Amazingly that argument got four votes, but fortunately it didn’t get five.

On arbitration, an important case called Italian Colors held that arbitration agreements that prohibit class-wide adjudication are enforceable under the Federal Arbitration Act, even if individual actions would not be economically feasible.

Editor: What about the patent cases?

Katsas: There were two big patent cases, and their results were somewhat mixed. Myriad Genetics dealt with the patentability of human genes. The Court held that naturally occurring DNA segments removed from the human body are not eligible for patenting. The company in that case had discovered the location of genes that are significant in predicting susceptibility to breast cancer. The Court thought that was more like a discovery than like an invention. So that was bad for biotech companies seeking patent protection. But a second holding in the case was that synthetic DNA – man-made sequences that contain some of the genetic code and were created by splicing out extraneous codes and thereby creating new molecules – were eligible for patent coverage. So that part of the case is obviously good for the biotech companies.

Another case with mixed results is Actavis. This case involved reverse settlement agreements. Usually the defendant pays the plaintiff to settle the case. These are cases in which a patent holder pays the alleged infringer to settle and thereby eliminate challenges to the validity of a patent. The Court said that these settlements are subject to antitrust scrutiny under the rule of reason, because they tend to keep patents in place that might be subject to challenge for invalidity. The companies had said that kind of settlement should be categorically lawful because it simply addresses matters that are covered by the patent monopoly. The Court rejected that view, but they also rejected the FTC view under which this kind of settlement would be presumptively unlawful under the antitrust laws. The upshot is that all of these reverse settlements are going be subject to rule-of-reason scrutiny based on the facts and circumstances of each case.

Editor: Are there any other cases potentially important to business interests?

Katsas: One that I want to flag is Arlington v. FCC, which held that federal agencies get deference in interpreting the jurisdictional limits of their own governing statutes. That case didn’t arise in a business context, but it has obvious implications for business, particularly now with the Obama administration pursuing an aggressive regulatory agenda without always having clear statutory authority. I think business would have preferred a more robust judicial enforcement of statutory limits on agency authority.

Editor: What were the most important cases of general interest?

Katsas: Obviously, the gay marriage cases: One of them ensures gay marriage in California by cutting off an appeal from a district court decision that had imposed it, and another strikes down the federal Defense of Marriage Act, which had defined marriage for federal law purposes as solely between a man and a woman. And then there were a couple of pretty important race cases. In Shelby County, the Court held that Congress can’t subject specific states or municipalities to federal oversight based on 50-year-old coverage formulae. However, it still leaves intact the general prohibition on voting changes that have adverse impacts on racial groups, and it leaves intact the possibility for special pre-clearance rules directed at targeted jurisdictions if, but only if, Congress comes up with a new coverage formula reflecting current realities.

Then there was the affirmative action case, Fisher, involving racial preferences by the University of Texas. The Court held that college administrators don’t get deference in deciding how to tailor their preference schemes. This was a loss for people who like racial preferences, but frankly it was a much narrower decision than many were expecting. I think the general view was that there were probably five votes to cut back significantly on racial preferences, and this decision does that only very modestly.

Editor: What about Maryland v. King?

Katsas: That’s a case about the use of DNA testing. The Court approved its use for anyone arrested for a crime. Justice Scalia in dissent said that this involves generalized searches to uncover crime without a warrant. The majority, I think pretty sensibly, said, “Look, it’s not a very intrusive procedure and it’s incredibly accurate technology, not only to convict the guilty but also to exonerate the innocent.” So, a really important law enforcement technique was upheld.

Editor: What’s on the docket for next term?

Katsas: The most interesting and important case so far is the constitutional challenge to the recess appointments recently made by the President to the NLRB and the CFPB. This is an area in which the Supreme Court has not spoken. It’s enormously important in fixing the balance of power between the President and the Senate with regard to appointments.

Please email the interviewee at ggkatsas@jonesday.com with questions about this interview.