Washington Legal Foundation – A Look Ahead at SCOTUS October Term 2014

Monday, November 3, 2014 - 10:39

The following is a summary of a media briefing presented by the Washington Legal Foundation (WLF) on October 1, 2014, entitled “The U.S. Supreme Court: Previewing the October 2014 Term.” The featured speakers were (moderator) Eric Grannon, Partner, White & Case LLP; John P. Elwood, Partner, Vinson & Elkins LLP; Allyson N. Ho, Partner, Morgan, Lewis & Bockius LLP; and Shirley Cassin Woodward, Partner, WilmerHale. For the full media briefing, please visit www.wlf.org.

Grannon: We’ve got a very experienced panel of Supreme Court litigators for this discussion. I have just a few introductory remarks. First, the Washington Legal Foundation’s mission to defend our free enterprise system and individual business liberties is perhaps most uniquely served in its role as a litigant. In 2013, the WLF participated in over 80 court cases and regulatory proceedings, including 25 before the United States Supreme Court. WLF is also the only organization I know of that offers media briefings focusing on Supreme Court cases that may not necessarily get immediate headlines but are relevant to that mission. Our panelists will discuss selected cases on the Court’s docket for the October 2014 Term.

Elwood: I’ll lead off with Elonis v. United States, which involves a 27-year-old man working in Pennsylvania. When his wife of seven years left him and his two kids, he decided to express his feelings about this on Facebook to several hundred of his closest friends, including posts that included fairly violent imagery. The government took the position that what matters is not whether Mr. Elonis thought he was threatening but whether a reasonable person reading those posts would think they were a threat. If so, then Mr. Elonis could be convicted and imprisoned for sending a threat through the wires. The defense argued that the Constitution required that the posts be subjectively intended to be considered a threat. The Supreme Court, granting certiorari, added another issue: whether the statute in question should be construed to have a subjective intent requirement. The significance of the case will depend on whether it goes off on the statutory obstruction issue or whether the justices resolve it on constitutional grounds. On the constitutional law argument, there is a very good case that historically there has not been a tradition in law of punishing speech based on what an objective observer would view as a threat. Rather, the law has required subjective intent.

Kellogg Brown & Root v. United States ex rel. Carter may seem utterly dull to most people, but not to anyone who has ever entered into a contract with the government. It presents two issues: first, whether the Wartime Suspension of Limitations Act applies to civil cases. That Act tolls the statute of limitations for an offense involving fraud against the United States, and the government has become very fond of this statute in recent years in order to revive old False Claims Act cases. The Act also is being used by qui tam relators in civil cases. This was a splitless issue, but apparently it seemed sufficiently interesting to the justices to call for the views of the solicitor general (SG). The second issue relates to one of the main bars applicable to the False Claims Act: the first-to-file bar, which provides that, once somebody has brought an action, “no person other than the government may intervene or bring a related action based on the facts underlying the pending action.” The question at issue is whether, when the blocking case is dismissed for some reason, the cases that were behind it spring back to life, or do they continue to be barred. Of the decisions on point, the majority position is that the blocked cases spring back to life. The D.C. Circuit, on the other hand, held by a 2-1 vote that once a case is barred it’s barred for good. The solicitor general advised that the justices not take the case, that the suspension issue was splitless and that the appeals courts had decided correctly – adding that when the SG’s office took an opposite position back in the 1950s, they were wrong. The SG also agreed with the dissent in the D.C. Circuit. In any event, the Supreme Court granted certiorari on both issues.

Third, Teva v. Sandoz. The question presented is whether, when one construes a patent claim to figure out what it covers, the subsidiary factual findings of the district court are subject to de novo review (which is the Federal Circuit’s rule) or are subject to review for clear error (which is what Federal Rule of Civil Procedure 52(a) would suggest). This came up when the generics moved to invalidate the patent for indefiniteness. The concern that prompted the Federal Circuit to take its position is a concern about creating more uniformity in the way patents are construed. You don’t need to have de novo review of factual findings in order to have more centralized and coherent claims construction. The patent people with whom I work think that, when something becomes a factual finding and is essentially untouchable, it just can’t help but reduce the ability of the Federal Circuit to put on whatever unifying gloss it can. It’s significant that both Intel and Google filed amicus briefs supporting the generics here because they’re very concerned, lest some patent troll receive a favorable construction out of a friendly judge in a far-off district court, to retain the maximum ability to revisit the issue in the Federal Circuit. And with that, I will turn it over to Allyson.

Ho: When the upcoming term is described charitably as a meat-and-potatoes term, and uncharitably as boring, that means it is full of cases very interesting to people like me and quite uninteresting to the public in general. The cases I will highlight involve significant but not terribly sexy issues that the lower courts have been grappling with for a long time. The first, Perez v. Mortgage Bankers Association, is actually two cases for which the petitions have been consolidated. The Court will decide whether the Department of Labor must provide notice and an opportunity for comment before the agency can reverse its previously authoritative interpretation of a regulation and take the opposite position. For decades the D.C. Circuit has held that an agency has to go through notice and comment procedures to reverse an interpretation even though the Administrative Procedure Act exempts so-called “interpretive rules” from that Act’s requirement of notice and comment. What the agency has essentially done under these circumstances is to amend its regulation – something that it cannot do formally without providing notice and an opportunity to comment. Judicial invalidation of agency action under these circumstances has, however, been very rare thanks to (1) the conditions imposed on the application of the doctrine in requiring a definitive interpretation at the outset and a substantial change to that doctrine thereafter, and (2) the prophylactic effect of the rule itself, in affecting agency behavior and discouraging agency flip-flops without giving regulated persons notice and an opportunity to comment. The case raises important issues of statutory interpretation, of agency authority and (I would argue) of government transparency and accountability, all important issues given the continued rise and reach of the administrative state.

Second, in M&G Polymers USA LLC v. Tackett, the Court will decide a multiple circuit split over the issue of whether, when construing collective bargaining agreements under the Labor Management Relations Act, courts should presume that silence or ambiguity in those agreements concerning the duration of healthcare benefits promised to retirees means that the parties intended those benefits and obligations to vest. The Sixth Circuit has taken the position that they do vest and that the employer cannot thereafter alter or reduce the level of benefits promised. On the other hand, the Third Circuit has held that – given Congress’s determination in ERISA that, although pension benefits vest, welfare benefits such as healthcare and medical benefits do not, and given the nature of the obligation that an employer would undertake in promising to fund healthcare benefits without employee contributions for life – courts should presume that these benefits do not vest in the absence of clear expression to the contrary. The Seventh Circuit has staked out a middle position in which it presumes that healthcare benefits vest, but there is a whole mechanism for knocking out that presumption. As a result, we have a situation where the very same language in collectively bargained agreements concerning retiree healthcare benefits is being construed completely differently depending where the case is brought. This sort of naked forum shopping would be intolerable in any context, but is especially so in the context of national labor law, which prizes uniformity and consistency.

I’ll also draw to your attention to a case arising out of the Deep Water Horizon Oil Spill litigation (BP Exploration & Production Inc. v. Lake Eugenie Land & Development, Inc.), that may appear on the docket next year and that raises important questions about the class action device and about settlements in class actions: specifically, the Fifth Circuit’s decision upholding the certification of a class to include numerous members who never suffered an injury caused by the defendant. This is an important issue, and it will be interesting to see whether the Court takes it up. Now to Shirley.

Woodward: Like John and Allyson, I think the view that the upcoming term offers little in the way of excitement largely misses the point. The cases I’ll talk about involve civil procedure. No doubt the rules themselves are often arcane and complex, but their interpretation and application determines who gets into court, how litigants navigate the system, and whether or when a litigant can receive a remedy. At the broadest level, procedure cases raise fundamental questions for the courts: what is the proper role of litigation, and what is the proper role of courts in shaping our society?

Procedure cases are often overlooked because you have to look at them over the course of years, not just one court term. Forty years ago, the Court was creating new private rights of action and making it easier to get into court and to prevail. A retrenchment in the last few decades has resulted in an updated view that courts may not be best suited to adopt and enforce schemes of economic regulation. In that vein, the Roberts Court has made it harder to bring class actions and certain securities actions, to litigate as opposed to arbitrate, and to survive motions to dismiss (by heightening the pleading standards). Change like this is gradual, not the result of one blockbuster case, and a few cases this term implicate these broad themes.

Dart Cherokee Basin Operating Company v. Owens raises the less-than-scintillating question of removal of state court actions to federal court. Dart Cherokee is an oil and gas company, one of whose royalty owners filed a class action in state court alleging that the company had underpaid its royalties. Dart Cherokee filed a petition to remove under the Removal Statute (28 U.S.C. § 1446) and the Class Action Fairness Act of 2005 (CAFA). As relevant here, CAFA requires that there be at least five million dollars in controversy before the case can be removed. The question presented to the Court is whether the petition for removal must include supporting evidence rather than a simple allegation of that amount. The Tenth Circuit said: present your evidence up front in the state court. While the outcome of the case will turn on interpretation of the particular statutory text, the case has important practical implications. Dart points out that requiring evidentiary support when filing a petition for removal will drive up the early-stage litigation costs for defendants, a result at odds with the Court’s more recent trend toward cutting back on early-stage discovery costs. Dart also argues that the Tenth Circuit mistakenly adopted a presumption against removal. In an excellent amicus brief, WLF made the argument that this presumption is not historically accurate and flies in the face of CAFA’s intent to make removal easier. The Court’s resolution of these issues will have a great influence on both the cost and the difficulty of defending large class actions.

Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund is a securities class action that raises the almost metaphysical question: when can a statement of opinion be a false statement? Section 11 of the Securities Act of 1933 forbids false statements of material fact in SEC-filed registration statements. Omnicare in its SEC filing expressed the belief that its practices complied with law. The question for the Court is whether the Securities Act requires that the statement be objectively false (in other words, the speaker believed it, but it turns out to be untrue) or whether it has to be subjectively false (i.e., the speaker did not honestly hold that belief when expressing the opinion). The solicitor general filed a third-way proposal saying the statement should be actionable either if it is subjectively false or if it has no reasonable foundation.

In Virginia Bankshares, Inc. v. Sandberg (1991), the Court decided this issue with respect to almost identical language, holding that both subjective and objective falsity were required for the statement to be actionable. The Sixth Circuit, however, found that only objective falsity was required. While the outcome of Omnicare will turn on textual analysis of the Securities Act and the Virginia Bankshares opinion, the Court’s selection of one rule over the other will have important practical consequences. If objective falsity is the standard, this will likely cause a significant increase in corporate exposure to litigation and liability, and exposing companies to liability for subjective judgments that turn out to be wrong could have a chilling effect on voluntary disclosure. Another WLF amicus brief points out that this danger is especially pernicious for high-tech, biotechnology, and cutting-edge companies whose judgments about the potential success or viability of their products are necessarily more speculative than would be the case for traditional corporations. On the other hand, it might be difficult to prove that a company actually knew its statement of opinion was false, so you have the specter of companies potentially getting away with misleading statements – which is obviously not good for shareholders or for the larger economy. The Court’s decision will affect not only the cost and difficulty of defending against class actions but also the type of information that companies will be willing to disclose voluntarily, with practical consequences for corporations and shareholders.

Finally, Integrity Staffing Solutions, Inc. v. Busk, also a class action, involved interpretation of the Fair Labor Standards Act (FLSA). Integrity Staffing Solutions provides warehouse workers to companies like Amazon, which require those workers go through security screenings to prevent theft. The employees here allege that because they had to wait up to 25 minutes for these screenings, they were entitled to overtime for that time. The FLSA requires employers to pay overtime for work in excess forty hours per week. In the 1940s the Court rendered an expansive interpretation of what “work” means under FLSA, concluding that all time during which the employee was required to be on the employer’s premises was counted as “work.” After a spate of lawsuits seeking back pay, Congress responded in 1947 by passing the Portal-to-Portal Act, exempting from the FSLA overtime requirements any employee activities (even on the employer’s premises) unless they were preliminary or post-liminary to the employee’s principal activities. Then in 1956 the Court interpreted “preliminary” and “post-liminary,” concluding that pre- or post-shift tasks that were integral and indispensable to the employer’s principal activities were compensable.

The question comes down to whether security screening is more like waiting in line to punch a time clock (not compensable) or more like taking off protective clothing at the end of a shift (compensable). The Ninth Circuit said the security screenings are integral and indispensable because they are necessary to the employees’ principal work, and they are for the benefit of the employer. Integrity Staffing argues that this reverts to the status quo before the Portal-to-Portal Act, i.e., anything required by the employer becomes compensable. The respondent argues that a decision the other way could result in the employer’s requiring all sorts of uncompensated pre- and post-shift activity. Once again, the solicitor general made an alternative proposal to the effect that compensability should turn on whether the pre- or post-shift work is directly related to, or intertwined with, work done on the employee’s shift. The solicitor general concluded that the security screenings in this case do not fit that definition and would not be compensable. Some commentators have already noted an increase in large class actions seeking back pay for security screenings. The larger issue for the Court here is to ensure both that workers’ rights are protected and that the economic regulations are enforced in a fair and efficient manner.

In short, these cases undeniably involve the minutia of civil procedure; however, lurking behind the application of procedural rules in somewhat obscure contexts are fundamental questions about our judicial system: what role should litigation have, and what role should the courts have in shaping the regulatory schemes under which we live? For that reason, these cases deserve our attention.

Eric Grannon is a Partner in the Washington, DC office of White & Case LLP. A former prosecutor, Mr. Grannon returned to White & Case after serving as counsel to the Assistant Attorney General in charge of the Antitrust Division of the United States Department of Justice, where he helped formulate U.S. antitrust enforcement policy and manage the civil and criminal investigations and court cases brought by the Antitrust Division. He is a member of Washington Legal Foundation’s Legal Policy Advisory Board.

John P. Elwood is a Partner in the Washington, DC office of Vinson & Elkins LLP. Mr. Elwood previously served as an assistant to the Solicitor General of the United States, and as senior Deputy in the Office of Legal Counsel at the Department of Justice. He represented the Justice Department as an ex officio member of the U.S. Sentencing Commission and as a member of the Advisory Committee on Federal Rules of Criminal Procedure. Mr. Elwood is counsel of record for the Petitioner in Elonis v. United States, which will be argued before the Court on December 1.

Allyson N. Ho is a Partner in the Dallas and Houston offices of Morgan, Lewis & Bockius LLP, where she co-chairs the Appellate Practice. Ms. Ho served as a law clerk to Justice Sandra Day O'Connor of the U.S. Supreme Court and Judge Jacques L. Wiener Jr. of the U.S. Court of Appeals for the Fifth Circuit. Immediately prior to joining Morgan Lewis, she served as a special assistant to President George W. Bush and as counselor to the Attorney General of the United States. Ms. Ho is counsel of record for the Respondent in Perez v. Mortgage Bankers Association, which will be argued before the Court on December 1.

Shirley Cassin Woodward is a Partner in the Washington, DC office of WilmerHale, practicing in its Litigation/Controversy Department and the Appellate and Supreme Court Litigation Practice Group. She joined the firm in 2001 after serving as a law clerk to Judge Laurence Silberman of the U.S. Court of Appeals for the D.C. Circuit and Justice Sandra Day O’Connor on the U.S. Supreme Court. Ms. Woodward also previously worked in the Operations Directorate of the Central Intelligence Agency. She returned to WilmerHale in 2014 after spending a year as Associate General Counsel and Chief Iraq Investigator for the Commission on the Intelligence Capabilities of the U.S. Regarding Weapons of Mass Destruction.