Argument analysis: Justices cautious about validating California court’s jurisdiction over claims by out-of-state litigants against out-of-state defendants

Tuesday morning’s argument in Bristol-Myers Squibb v. Superior Court of California brought the justices a case at the intersection of class actions and personal jurisdiction. The case involves litigation by several hundred individuals from 33 states (many, but not all of them, from California) for injuries associated with the Bristol-Myers drug Plavix. The question for […]

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Tuesday morning’s argument in Bristol-Myers Squibb v. Superior Court of California brought the justices a case at the intersection of class actions and personal jurisdiction. The case involves litigation by several hundred individuals from 33 states (many, but not all of them, from California) for injuries associated with the Bristol-Myers drug Plavix.

The question for the justices is whether California courts have the authority to adjudicate the claims brought against Bristol-Myers by individuals from other states. Although Bristol-Myers has extensive contacts with California, nothing about the claims of these particular plaintiffs involves California: Bristol-Myers did not develop or manufacture the drug in California and there is no reason to think that marketing, promotion or distribution in California was involved in the injuries of the out-of-state plaintiffs. The only way in which their claims relate to California is that the marketing and promotion of the pharmaceutical was conducted on a nationwide basis: The same advertising and distribution arrangements that reached the out-of-state plaintiffs were the ones that reached the in-state plaintiffs (who plainly can sue in California courts).

The justices were fully engaged, with pointed questions for advocates on both sides. The biggest problem for the defendant Bristol-Myers (represented by Neal Katyal) was the prospect of “piecemeal litigation,” a theme Justice Sonia Sotomayor reiterated throughout the argument. Her concern was that a constitutional rule preventing one forum from adjudicating all the claims against a single defendant would cast a shadow over commonplace procedural devices such as the class action and multidistrict litigation.

Neal K. Katyal for petitioner (Art Lien)

Katyal’s answer was that the rules for due process in federal courts and state court are quite different, emphasizing that federal courts, founded on national sovereignty, have an easy justification for nationwide service of process and the like, while state courts, founded on the limited territorial sovereignty of any particular state, have a much less easy time justifying the exercise of jurisdiction for nonlocal claims involving nonresidents. Justice Anthony Kennedy plainly agreed with that point, commenting that “there’s a different set of criteria [that] you apply” when assessing due process concerns at the two levels; “[t]he States are limited in their [ability to exercise] jurisdiction … nationwide, the Federal government isn’t.”

But Sotomayor was far from satisfied. As she stated, “I have no idea how you draw that [state-federal] line.” Sotomayor’s questioning was particularly pointed during the presentation of Rachel Kovner, an assistant to the U.S. solicitor general who argued in support of Bristol-Myers. For example, positing a hypothetical about a foreign defendant, Sotomayor pointed out that “[u]nder your theory, [a] foreign corporation might be sued in the particular State in which an injury occurred. But since it has no home State in the United States, that means that in that situation, there’s no place for plaintiffs to come together and sue that person, correct?” Similarly, returning to her concern about the need for efficient nationwide litigation, she asked Kovner: “If due process says that you can’t hale someone into a court with which they’ve had no contacts, how do you justify the many criminal statutes we have – RICO, CERCLA, there’s a whole bunch of them – that permit the joinder of all of these defendants in one indictment?”

Parallel to that problem was a “so what’s the big deal” theme, put most clearly by Justice Elena Kagan. All agree that Bristol-Myers is subject to suit in California at the behest of the hundreds of California residents who used Plavix, and all agree that Bristol-Myers can hardly be surprised at the location of that litigation given its marketing and distribution in the state. Given those points, Kagan asked, “why is it unfair to glom on Texas claims and New York claims to the California claims, once we already have a mass action which will have multiple jury trials? … [Y]ou already know because this is … nationwide marketing … that you’re subject to jurisdiction in any of the 50 States.”

That’s not to say that it was smooth sailing for Thomas Goldstein (appearing on behalf of the non-resident plaintiffs, trying to preserve the California forum). Several of the justices seemed firmly set against his argument that Bristol-Myers’ contacts with California residents should have any weight in assessing its vulnerability to a California suit brought by nonresidents.

Thomas C. Goldstein for respondents (Art Lien)

So, for example, one group of justices thought his argument failed to give due weight to the states outside California. In Justice Anthony Kennedy’s view, Goldstein was offering “a very patronizing view of federalism. California will tell Ohio ‘Oh, don’t worry, Ohio. We’ll take care of you.’ That’s … not the idea of the Federal system. The Federal system says that States are limited.” In the same vein, Kagan asked what Goldstein had to say “about the interest of the State the Bristol-Myers resides in? In other words, they might have an interest in not having their citizens haled into court against their will in another part of the country.”

More generally, Kagan seemed to find Goldstein’s proposed due process framework inconsistent with her understanding of the cases. She likened his argument to a Rube Goldberg arrangement in which “the claim relates to another claim that relates to contacts with the forum.” In her view, by contrast, the law requires a direct relationship between the plaintiff and the defendant’s contacts with the forum:

I’m missing what the relationship is between an Ohio plaintiff’s claim and the defendant’s contacts with the forum that doesn’t go through another claim…. But I guess what I’ve always thought that our personal jurisdiction cases require is … something like … [t]he plaintiff’s claim relates to or arises out of the defendant’s contacts with the forum State. … And I just want you to tell me how an Ohio plaintiff’s claim arises out of or relates to the defendant’s contacts with California.

Following up on that point with similar skepticism, Justice Stephen Breyer at one point asked “what is it I say in a single sentence that … make[s] it clear to that defendant why he is here?”

In response, Goldstein pointed to the role of McKesson – the California-based distributor through which Bristol-Myers distributed much (though not all) of its Plavix sales. McKesson’s role as a distributor leaves it a defendant alongside Bristol-Myers with respect to many of the out-of-California plaintiffs. Because McKesson is based in California, California plainly has the authority to adjudicate all of the claims of nonresidents against McKesson. Picking up on an earlier interchange between Justice Ruth Bader Ginsburg and Kovner, in which Kovner had acknowledged that under Bristol-Myers’ theory, there might be no other “place where these plaintiffs could sue McKesson as well as Bristol-Myers,” Goldstein suggested that the role of McKesson provided yet another reason why this particular case could be adjudicated in California. That prompted a curt rejoinder from Justice Neil Gorsuch, who found it “a very fact-specific argument.” Gorsuch went on to add that “we took this, I thought, to decide whether we … permit this sliding scale business that California engages in, as a legal matter.” When Goldstein responded that McKesson’s role was integral to the lower court’s analysis and that it would be “very confusing to the lower courts to simply cast it aside,” Gorsuch retorted: “What’s confusing, though, about simply saying ‘here’s the correct test, reverse, remand, go apply the correct test’?”

The most difficult portion of Goldstein’s presentation came when he suggested (echoing Kagan’s point from earlier in the morning) that California jurisdiction is made more palatable by the presence of several hundred indisputably local claims involving local residents. The implicit suggestion of a balancing test involving the number of local residents struck a raw nerve with Chief Justice John Roberts, who interjected that “we’re dealing with a jurisdictional rule, and when we do that, we want the rules to be as simple as possible. … [Y]ou’re articulating a rule that [governs] businesses trying to figure out where to do business and plaintiffs where to sue and courts whether it’s [permissible]. Your rule depends upon some line between [a] handful and … hundreds.”

Then, when Goldstein tried to defend that line, Kagan brusquely cut him off, arguing that Goldstein’s comments to Roberts contradicted his earlier discussion with her:

It seems to me, on your theory, it could be zero California plaintiffs, because here’s what you told me. You told me that the reason that … an Ohio citizen’s claim arises out of the contacts in California is because the contacts in California are really nationwide contacts. And if that’s so, it’s met regardless of whether there are any California plaintiffs or not.

Somewhat surprisingly, it was only near the end of the argument that the discussion turned to the problem of specific and general jurisdiction that occupied so much of the briefing. Responding to the interchange with Roberts and Kagan by acknowledging some tension between his position and some of the court’s recent cases, Goldstein suggested that it would make sense for the court to adjust the details of its rules for specific jurisdiction (a state’s power to hear a case based on its connection to that particular dispute, the power at issue here) to accommodate its marked narrowing in Daimler AG v. Bauman of rules for general jurisdiction (a state’s power to hear a case based on its connection to the defendant). Raising that topic got the attention of Justice Ruth Bader Ginsburg (the author of the Daimler opinion), who pointedly remarked that “[w]hat you’re suggesting is that the Court was wrong in … Daimler” and added that this case could be viewed as “an attempt to reintroduce general jurisdiction, which was lost in Daimler, by the back door.” As noted here, the discussion of Daimler continued during the next hour’s argument in BNSF Railway Co. v. Tyrrell, in which several justices seemed set on reaffirming or extending Daimler. To the extent that same intuition carries over to this case, it poses a challenging hurdle for the plaintiffs.

At the end of the day, the argument makes it clear that the justices will tread cautiously here, recognizing the broad systemic implications of pronouncements about the constitutional limits on judicial authority. The combination of caution with the intricate framework of the relevant cases suggests that we will be waiting several weeks for a resolution in this one.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the respondents in this case. The author of this post, however, is not affiliated with the firm.]

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Argument analysis: Court dubious about reading Fair Debt Collection Practices Act to reach debt buyers

Argument analysis: Court dubious about reading Fair Debt Collection Practices Act to reach debt buyersThe bench was relatively quiet for yesterday morning’s argument in Henson v. Santander Consumer USA, allowing counsel on both sides to talk for long periods without interruption, suggesting if anything that the justices see a straightforward answer in the text of the governing statute. Justices Anthony Kennedy and Neil Gorsuch said not a word, and […]

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Argument analysis: Court dubious about reading Fair Debt Collection Practices Act to reach debt buyers

The bench was relatively quiet for yesterday morning’s argument in Henson v. Santander Consumer USA, allowing counsel on both sides to talk for long periods without interruption, suggesting if anything that the justices see a straightforward answer in the text of the governing statute. Justices Anthony Kennedy and Neil Gorsuch said not a word, and even Justice Ruth Bader Ginsburg – who so commonly opens the questioning in the first minutes of the argument – held her peace until almost the middle of the hour.

The case presents a basic question under the Fair Debt Collection Practices Act: whether the statute applies to the recently emerging industry of “debt buyers,” large entities that purchase the debts they collect instead of limiting themselves to providing collection services to the lenders that originated the defaulted obligations. The dispute turns on the FDCPA’s strange choice to regulate debt collection, but only by debt collectors, not the originators of the debt. Sensibly or not, Congress decided that federal supervision was appropriate not for original lenders, but only for third-party collectors, which may be less likely to have an ongoing relationship with the debtor.

This case involves neither of those groups, but rather an entity that (at least for the customers involved here) neither originates debts nor collects them for a third party – Santander Consumer USA (a subsidiary of the major Spanish banking group Banco Santander). In this case, Santander purchased a portfolio of automobile loans originated by a subsidiary of CitiBank, including loans made to the petitioners, Ricky Henson and a group of other individuals.

The key phrase in the statute defines a debt collector as “any person who regularly collects … debts owed or due … another.” Santander (represented by Kannon Shanmugam) argues that because it has purchased the debts they are no longer “owed or due … another.” The borrowers, on the other hand, argue that a debt is “owed” to the entity that originated it (CitiFinancial) but “due” to the person that has acquired it. Accordingly, they say, loans held by a debt buyer are not “due and owing” to the debt buyer, because they are still “owed” to the original lender (CitiFinancial).

During the argument, the justices motivated to speak at length seemed to find the borrowers’ reading quite difficult to accept. Justice Samuel Alito, for example, commented to Kevin Russell (representing the borrowers) that his reading of the statute is just “not the first way you’d read that. It’s not the fiftieth way you would read that. It’s just that – you’re fighting – you’re really going uphill on that. You need something really strong to overcome that, I would say.”

Trying a less confrontational tack, Justice Elena Kagan asked Russell, “if you just look at the language, … can you come up with any sentence [that] points toward your reading rather than towards Mr. Shanmugam’s?” She went on to elaborate:

[U]sually when we think about ambiguous phrases, … we can say [that] you could say this sentence and then [the phrase] would mean X. Or you could say this sentence and then [the phrase] would mean Y. But my problem when I think about this word is that I can never get it to mean what you want it to mean, no matter how I construct a sentence.

The quiescence of the bench did not seem to suggest a lack of engagement with the issues. Several of the justices asked both Russell and Shanmugam a fair number of questions about how well their readings of this core provision could be reconciled with the various exceptions and qualifications that surround it in the FDCPA. In truth, though, that discussion seemed desultory, as none of the justices seemed to think that any of the arguments about the exceptions were sufficiently pointed to weigh strongly in either direction.

The most successful point for the borrowers was the apparent oddity of drawing a line between debt collectors and debt buyers. Kagan, for example, commented to Shanmugam that the line he is asking the justices to draw

doesn’t make much sense, though, does it? I mean, take this very case. So your clients serviced this debt and counted as a debt collector at that time. And then your client purchased the debt and all of a sudden is not a debt collector. And I guess the question is: What happened in between the time when your client serviced the debt and the time when your client purchased the debt that in any way changed its relationship with the borrower such that Congress wouldn’t be concerned any longer with its behavior?

Chief Justice John Roberts pointed out one explanation for that situation near the end of Russell’s presentation, observing that “this particular context, with this particular type of entity, is not what Congress had before it when it passed the law. … The industry has evolved in a way that has raised these sorts of questions. This is not something that Congress was addressing.”

My preview suggested that the borrowers in this case would have to persuade the justices that it is so important to bring debt buyers under the aegis of FDCPA debt-collector rules that the court should overlook the challenge posed by the statutory text. The argument suggests that the borrowers may not be successful in overcoming that obstacle.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the petitioner in this case. The author of this post, however, is not affiliated with the firm.]

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Opinion analysis: Justices reject Missouri’s push to expand insurance benefits for federal employees

Opinion analysis: Justices reject Missouri’s push to expand insurance benefits for federal employeesNo surprises in this morning’s opinion in Coventry Health Care v. Nevils. The argument suggested a bench of justices that took this case for the purpose of reversing the Missouri Supreme Court, and the opinion (handed down less than six weeks after the argument) of Justice Ruth Bader Ginsburg for a unanimous court suggests that […]

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Opinion analysis: Justices reject Missouri’s push to expand insurance benefits for federal employees

No surprises in this morning’s opinion in Coventry Health Care v. Nevils. The argument suggested a bench of justices that took this case for the purpose of reversing the Missouri Supreme Court, and the opinion (handed down less than six weeks after the argument) of Justice Ruth Bader Ginsburg for a unanimous court suggests that nothing in the briefs or argument slowed that impulse.

The case involves a question of pre-emption, specifically whether federal law pre-empts the application of a Missouri consumer-protection statute that is inconsistent with the insurance policies that the federal Office of Personnel Management prescribes for federal employees. The specific question involves “subrogation” clauses, which authorize insurers to recover funds their insureds obtain from third parties with regard to covered claims: If I have an automobile accident and my insurer pays my medical bills, the subrogation clause obligates me to reimburse the insurer if I recover the cost of those bills from the other driver.

What makes the case so easy is the combination of a pretty clear statute and a topic on which Congress’s top-level intent could hardly be plainer: Can anyone think that Congress wants federal employee benefits to differ from state to state based on the state law of the employees’ residence? So the brevity of Ginsburg’s opinion is to be expected. The relevant statute pre-empts any state law that “relates to health insurance or plans” if it also “relates to the nature, provision, or extent of coverage or benefits,” “including payments with respect to benefits.” All agree that Missouri’s statute relates to health insurance, so the only textual dispute before the court is whether the statute also relates to “payments with respect to benefits.” On that point, it is enough for the opinion to state that the statute does relate to payments “because subrogation and reimbursement rights yield just such payments. When a carrier exercises its right to either reimbursement or subrogation, it receives from either the beneficiary or a third party ‘payment’ respecting the benefits the carrier had previously paid.” It seems almost superfluous for the opinion to offer a few citations noting the court’s traditionally broad understanding of pre-emption clauses (like the one in the Employee Retirement Income Security Act of 1974) that reach laws that “relate to” the specified subject, and to note that these provisions produce more than $100 million a year in recoveries related to federal employee policies.

Notably, the court’s conclusion that the statute’s text necessarily extends to the Missouri statute allows the court to skip over several of the interesting topics that appeared in the briefing – the extent of any presumption “against pre-emption” or the propriety of deference to the OPM regulation construing the statute to pre-empt state law. Rather, the only point left for the court to address is the odd idea that the supremacy clause itself invalidates the statute. Here, judges on the Missouri court pointed to the particular language of the federal statute, which states that the “terms of any contract … supersede and preempt state laws”; the state judges argued that under the supremacy clause pre-emption must come from “Laws of the United States,” not a mere contract of the Office of Personal Management. The court swept that argument aside in a brief paragraph characterizing it as “elevat[ing] semantics over substance” and pointing out that the statute itself “manifests the … intent to preempt state law. Because we do not require Congress to employ a particular linguistic formulation when preempting state law, Nevils’ Supremacy Clause challenge fails.”

As I suggested above, the court’s unanimous decision for the insurer cannot really come as a surprise to any informed observer. There was some possibility, though, that the opinion might say something derogatory about a supposed “presumption against pre-emption” or comment on the ability of a federal agency to alter the pre-emption analysis by issuing a regulation in the face of litigation. By resting the opinion on the text alone – admittedly not all that tendentious a reading – the court more or less ensured that this opinion will sink without a trace into the relevant volume of the United States Reports.

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Argument analysis: Justices stay late to hear argument about deadlines for investors opting out of securities class actions

Argument analysis: Justices stay late to hear argument about deadlines for investors opting out of securities class actionsThe justices started off their new colleague Neil Gorsuch with a hard day of work, staying after lunch yesterday to hear a third oral argument in a single day for the first time since October. And this for a securities case. Now, if you are not a securities lawyer, you might have assumed from the […]

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Argument analysis: Justices stay late to hear argument about deadlines for investors opting out of securities class actions

The justices started off their new colleague Neil Gorsuch with a hard day of work, staying after lunch yesterday to hear a third oral argument in a single day for the first time since October. And this for a securities case. Now, if you are not a securities lawyer, you might have assumed from the question presented that California Public Employees’ Retirement System v. ANZ Securities involves some tediously intricate question about securities procedure, likely to leave the justices dozing after lunch. But in truth it is not really all that complicated. Indeed, as class-action cases in the Supreme Court go, this is about as simple as it gets. The basic question is one that any reader can appreciate: If a plaintiff files a class action complaint that includes your claims, does that count as your complaint if you decide to “opt out” of the class action? Or do you have to file your own complaint before the deadline for filing expires?

The Supreme Court has addressed a similar question before, in its 1974 decision in American Pipe & Construction v. Utah. The court held in that case that the class complaint did count as the claim of the individual claimants for purposes of statutes of limitation; specifically, it held that the class complaint “tolled,” or suspended, the statute of limitations so that the individual’s later complaint was timely. In the securities laws, though, there are two different kinds of filing deadlines. The first, statutes of limitation, are relatively short and run from the time when the claimant discovers the problem that gives it a right to sue; the second, statutes of repose, are relatively long and run from the date of the violation in question. We know from American Pipe that the class-action complaint tolls the statute of limitations. The question here is whether the same rule applies to statutes of repose. And on that question the argument suggests a bench that is far from settled.

During the argument of Thomas Goldstein (representing CalPERS, which tried to opt out of the class action after the expiration of the statute of repose), at least two of the justices (Justices Samuel Alito and newcomer Neil Gorsuch) seemed settled on the idea that the statute simply cannot be read to permit the late opting out. They emphasized the statutory command that no new “action” can be brought after the three-year deadline. As Gorsuch put it:

[W]hen I see the word “action,” I think of lawsuit, traditionally, and “claim” as the claims within the lawsuit. And the laws often distinguish between actions and claims. The securities laws do, routinely. … Here, why shouldn’t we follow the plain language and the traditional understanding of the term “action”? … I don’t like the policy consequences, but as a matter of plain language, why wouldn’t we?

Nor was Gorsuch alone on that point: Alito repeatedly pressed Goldstein on the same phrase of the statute: [W]hat does the term ‘such action’ mean? … [I]f a plaintiff in every single judicial district in the country had brought exactly the same claim, those would all be the same action, in your opinion?” And even Justice Stephen Breyer joined in to suggest the plausibility of that reading: “Your client leaves the first action. And what does he do after three years? I guess he puts a piece of paper called a complaint in a court and that would seem to be bringing an action.”

On the other side of the matter, Chief Justice John Roberts and Justice Elena Kagan seemed to think that significant practical considerations supported a rule that would treat the class-action complaint as adequate to protect the claims of specific investors. For her part, Kagan raised several different concerns in a series of exchanges with Paul Clement (counsel for the defendants). One of the most notable emphasized the disproportionate adverse impact the defendants’ rule would have on small investors:

If we go your way in this case, [in] any future suit like this all large investors [are going] to file a protective action. … Well, small investors are not going to do that. They’re not going to have the faintest idea that they should be doing that. So this is a rule that’s kind of guaranteed to create make-work for district courts to be essentially irrelevant for large investors, and [to cause] small investors to lose their claims.

At another point, Kagan suggested a limited conception of the “repose” that a statute of repose brings to defendants – not one that bars all later complaints, but really just one that bars the surprise of a plaintiff who brings a late suit when he first learns of its injuries many years after the defendants’ wrongful statements. Roberts seemed to agree with that point, commenting to Clement late in his presentation:

[T]here’s different levels of repose. … [Y]ou have repose under his theory, in the sense that you know what people are suing you about. You’re still facing a lawsuit in the other case. There aren’t going to be any more surprises. You know what’s on the table. That’s repose. … I mean, the liability is the same if you have the class action including CalPERS … as it is, if … you’re facing the class action without CalPERS, but another CalPERS suit.

Kagan also expressed concern that Clement’s understanding of repose would render the investors’ right to opt out largely illusory:

We’re used to thinking that the opt-out right is a very important part of class actions; it’s what saves them from a due process problem, that people actually do get to say, I don’t want any part of this. And you’re saying they only get to say that within 3 years …. [I]t may be 6 months [from] the time the suit was brought, or 1 month or something like that. And … if you haven’t decided within that month or 6 months that these lawyers are not doing a good job, you’ve lost your ability forever to do it for yourself.

The best quip of the argument came from Breyer, near the end of Clement’s presentation. I mentioned above that Breyer initially suggested he was sympathetic to the argument that the language of the statute cannot be read to validate the late opt-outs that CalPERS advocates. But Breyer made it clear near the end of the hour that the practical consequences of that reading might motivate him to abandon it. Imagining a class action involving 300,000 potential plaintiffs, Breyer strayed into the realm of hyperbole, contending that “[y]ou’ll have to build a new clerk’s office” to house the “300,000 pieces of paper [coming] across your desk” when every single one of the potential plaintiffs files a separate complaint.

The juxtaposition of several justices reading the statute as compelling a ruling for the defendants with other justices decrying the practical consequences of that reading suggests that the court is not likely to come to a unanimous resolution of the matter. So it is far from clear how this case will be decided, although given the apparent lack of unanimity, this case probably will not bring Gorsuch his first opinion assignment.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the petitioner in this case. The author of this post, however, is not affiliated with the firm.]

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Argument preview: Justices to consider challenge to California court’s jurisdiction over claims by out-of-state litigants against out-of-state defendants

Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County brings the justices once again to the thorny problems of personal jurisdiction: When is it appropriate for a court in one state to exercise jurisdiction over out-of-state defendants? This case involves litigation by several hundred individuals from 33 states (including 86 from California) for […]

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Bristol-Myers Squibb Co. v. Superior Court of California, San Francisco County brings the justices once again to the thorny problems of personal jurisdiction: When is it appropriate for a court in one state to exercise jurisdiction over out-of-state defendants? This case involves litigation by several hundred individuals from 33 states (including 86 from California) for injuries associated with the Bristol-Myers drug Plavix. Bristol-Myers has extensive contacts with California, because it markets and promotes the drug in California and distributed it to pharmacies in California that used it to fill prescriptions. So California litigation against Bristol-Myers by the California residents is not at all notable.

The litigation by individuals who are not from California is much more interesting, because nothing that Bristol-Myers did in California has any particular connection to them: Bristol-Myers did not develop or manufacture the drug in California and there is no reason to think that marketing, promotion or distribution in California was involved in the injuries of the out-of-state plaintiffs. At first glance, that seems to raise the distinction between “general” and “specific” jurisdiction: General jurisdiction subjects a defendant to any type of lawsuit at all in a forum state when the defendant’s contacts with that state are pervasive; a defendant is subject to specific jurisdiction in a forum state only in lawsuits arising out of in-state contacts that are sufficiently substantial to satisfy the due process clause. Most importantly, the court held in 2014, in Daimler AG v. Bauman, that general jurisdiction should be limited to the forum states in which a corporation can be regarded as “at home.” All agree that Bristol-Myers (based on the East Coast) is not “at home” in California and that general jurisdiction is not available.

The plaintiffs contend, though, and the California court agreed, that Bristol-Myers’ contacts with California are sufficiently “related to” the claims of the out-of-state plaintiffs to justify exercise of specific jurisdiction. They emphasize that marketing and promotion decisions were made on a nationwide basis and they argue that the California effects of the single stream of marketing and promotion are therefore “related to” the effects that stream of activity had in other jurisdictions. Bristol-Myers, in contrast, argues that its California activity is irrelevant because that conduct has no logical or causal link to the injuries: These plaintiffs would have been injured even if Bristol-Myers had never acted in California at all; the existence or non-existence of the California conduct had no effect on their situation.

The court’s cases on the boundaries of specific jurisdiction could be seen as offering little guidance to constrain the justices in determining when a court’s exercise of jurisdiction comports with due process. The question whether the court’s jurisdiction conforms to “traditional notions of fair play and substantial justice” seems only slightly more precise than Justice Potter Stewart’s “I know it when I see it” test for obscenity in the 1960s.

In this particular case, though, the doctrine, however hard to articulate, does provide more predictability than it might seem at first glance. Specifically, the justices may well approach this case as a follow-on to Justice Ruth Bader Ginsburg’s near-unanimous 2014 Daimler opinion, which markedly cut back on the availability of general jurisdiction. One way to view this case is to see the California court as searching for an end-run around Daimler, adopting a broad understanding of specific jurisdiction to hold onto a case in which general jurisdiction is no longer available. Another way to think about it is as a doctrinal counterpoise, softening the edges of the specific-jurisdiction doctrine to retain a place for the case-by-case flexibility that Daimler removed from the general-jurisdiction area. The comments of the justices at the argument should shed light on which of those perspectives dominates.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the respondents in this case. The author of this post, however, is not affiliated with the firm.]

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Argument preview: Court to consider application of Fair Debt Collection Practices Act to debt buyers

Following on the heels of the January argument in Midland Funding v. Johnson, the argument next week in Henson v. Santander Consumer USA brings the court for the second time this term to the Fair Debt Collection Practices Act, universally referred to as the FDCPA. The question is a basic one: whether the statute applies […]

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Following on the heels of the January argument in Midland Funding v. Johnson, the argument next week in Henson v. Santander Consumer USA brings the court for the second time this term to the Fair Debt Collection Practices Act, universally referred to as the FDCPA. The question is a basic one: whether the statute applies to the relatively recent group of large “debt buyers,” entities that purchase the debts they collect instead of limiting themselves to providing collection services to the lenders that originated the defaulted obligations.

The case turns on the relatively odd policy choice that Congress made when it enacted the FDCPA. The basic plan of the statute is to define a lengthy list of inappropriate collection activities and then to prohibit them, but only when they are engaged in by a “debt collector.” What that means is that Citibank’s activities collecting credit-card debts from its cardholders are wholly unregulated by the FDCPA, but if it hires a third party to collect those same debts, the activities of that third party will be subject to pervasive scrutiny under the FDCPA. As I mentioned above, this case involves a third fact scenario, relatively unusual at the time Congress adopted the statute, that arises when a creditor sells its debts for collection by a completely separate entity.

Photo courtesy of Promich

The case involves a series of car loans that CitiFinancial made to the petitioners, Ricky Henson and a group of other individuals. For a time, the respondent, Santander Consumer USA, serviced those loans for CitiFinancial, but after the borrowers went into default Santander purchased the loans, which it is now attempting to collect on its own account.

The key phrase in the statute defines a debt collector as “any person who regularly collects … debts owed or due … another.” The borrowers argue that a debt is “owed” to the entity that originated it but “due” to the person who has acquired it. Accordingly, they say, loans held by a debt buyer like Santander are not “due and owing” to the debt buyer, because they are still “owed” to the original lender (CitiFinancial, in this case). Santander, by contrast, argues that the debts are “due and owing” to Santander, because Santander has purchased them, and that it therefore is not a debt collector subject to regulation under the FDCPA.

The borrowers acknowledge the “surface appeal” of Santander’s reading of the statutory language. Still, they argue, the language is vague enough to permit extending it to cover debt buyers. The court should want to extend the language to cover debt buyers, the borrowers maintain, because federal regulators and most of the lower courts have read the statute to cover debt buyers for many years, and because the large debt-buying industry did not exist when Congress wrote the FDCPA. The borrowers assert that leaving that industry outside the FDCPA effectively guts the application of the FDCPA to the largest and most prominent current method of debt collection.

The borrowers’ arguments are supported by an amicus brief from more than two dozen states. We will have to wait for the argument to see whether that is enough to overcome the straightforward reading of the statute that Santander offers.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the petitioners in this case. The author of this post, however, is not affiliated with the firm.]

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Argument preview: Rules for timely filing of securities class actions before the court next week

California Public Employees’ Retirement System v. ANZ Securities presents such a basic question about class actions that it is astonishing the answer is not already settled: If a plaintiff files a class-action complaint that includes your claims, does that count as your complaint for purposes of filing your action in time? Or do you have […]

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Photo by David Shankbone

California Public Employees’ Retirement System v. ANZ Securities presents such a basic question about class actions that it is astonishing the answer is not already settled: If a plaintiff files a class-action complaint that includes your claims, does that count as your complaint for purposes of filing your action in time? Or do you have to file your own complaint before the deadline for filing expires? This becomes important any time a litigant decides that it wants to litigate the dispute separately from the class; when it “opts out” of the class litigation, it has to file a separate complaint. In this case, for example, CalPERS opted out of a settlement of which it disapproved in a major class action against underwriters of Lehman Brothers securities; the class-action complaint had been filed in a timely manner, but the U.S. Court of Appeals for the 2nd Circuit held that CalPERS’ individual complaint, filed after it opted out, was untimely.

The Supreme Court has addressed this question before, in its 1974 decision in American Pipe & Construction v. Utah. In that case, the court held that the class complaint did count as the claim of the individual claimants for purposes of statutes of limitation; more specifically, it held that the class complaint “tolled,” or suspended, the statute of limitations so that the individual claimant’s later complaint was timely. In the securities laws, though, there are two different kinds of filing deadlines. The first, statutes of limitation, are relatively short and run from the time when the claimant discovers the problem that gives it a right to sue; the second, statutes of repose, are relatively long and run from the date of the violation in question. We know from American Pipe that the class-action complaint tolls the statute of limitations, but the 2nd Circuit (like most of the lower courts) has held that it does not toll statutes of repose.

The relevant statute simply says that no “action” shall be brought after the relevant deadline; it would not be at all difficult to read the statute to support either side’s position. So the great bulk of what the parties are arguing about is appropriate policy for class actions. For the plaintiffs’ part (CalPERS in this case), the argument is obvious: A rule that the class-action complaint does not protect individual claimants from the statute of repose means that individual claimants will need to file their own separate complaints as the statute of repose approaches, flooding the dockets of federal courts in the process and destroying the case-management value of class actions. Moreover, in low-dollar class actions (areas like the Fair Labor Standards Act, for example), the ruling well might deny relief altogether, as the individual cases would not warrant the costs of separate complaints.

The defendants are ANZ Securities and a large group of parties related to the underwriting of Lehman Brothers securities. They rely on the Supreme Court’s practice of vigorously applying statutes of repose like the one at issue here. The most recent case, for example, the 2014 decision in CTS Corp. v. Waldburger, describes those statutes as an “absolute … bar” to liability, one that cannot be extended “for any reason,” not “even in cases of extraordinary circumstances.” They also counter CalPERS’ assertion that a contrary decision will cause a flood of litigation, pointing out that the 2nd Circuit, home to much of the nation’s securities litigation, has applied this rule since 2013 without any great difficulty.

The recent concern of several members of the court about the costs of class actions has been conspicuous. Even in the absence of Justice Antonin Scalia, the justices well may see the case through that lens. The challenge for CalPERS in the argument will be to overcome any skepticism about class actions and persuade the court to see this as a case about docket management.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel to the petitioner in this case. The author of this post, however, is not affiliated with the firm.]

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Opinion analysis: Justices offer minimalist decision on New York credit-card surcharge statute

Opinion analysis: Justices offer minimalist decision on New York credit-card surcharge statuteI think that neither the merchants nor the card networks will be jubilant about the Supreme Court’s narrow decision yesterday in Expressions Hair Design v. Schneiderman, which does little except prolong the litigation about the constitutionality of a New York statute that prohibits merchants from charging a surcharge to customers who use credit cards. For […]

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Opinion analysis: Justices offer minimalist decision on New York credit-card surcharge statute

I think that neither the merchants nor the card networks will be jubilant about the Supreme Court’s narrow decision yesterday in Expressions Hair Design v. Schneiderman, which does little except prolong the litigation about the constitutionality of a New York statute that prohibits merchants from charging a surcharge to customers who use credit cards.

For many years, the statute (like a now-expired provision of the Truth in Lending Act that it copies) was largely irrelevant, because the rules of the major credit-card networks prohibited merchants from discriminating against customers who use their cards. Those rules have recently come under antitrust attack, and the networks have entered into settlements that remove those restrictions in many contexts. Thus, statutes like the New York statute are now the main constraint on merchant behavior in this context.

This case involves a suit by a group of New York merchants, arguing that the New York statute violates the First Amendment because it regulates what they say about their prices. They point out that the statute does not prevent them from charging credit-card customers a higher price than cash customers; they are free to give a discount for the payment of cash. What they can’t do, though, is tell customers they are paying a surcharge or extra fee above the “sticker” price. The U.S. Court of Appeals for the 2nd Circuit dismissed the suit out of hand, concluding that price regulations regulate conduct alone and thus are immune from scrutiny under the First Amendment.

The opinion of the court by Chief Justice John Roberts is squarely in the minimalist vein we have come to know so well, especially with the diminished eight-judge court we have had without Justice Antonin Scalia. Once it has discussed the facts and the analysis of the court of appeals and identified the scheme in question, it offers three paragraphs making only one single point, that this statute goes beyond the pure regulation of price sufficiently into the realm of regulating speech that it is subject to scrutiny under the First Amendment.

That point is a simple one, succinctly made. The court notes that the typical price regulation exempted by the court’s earlier cases “would simply regulate the amount that a store could collect.” This regulation, the court tells us, is “different” in an important way, because “[t]he law tells merchants nothing about the amount they are allowed to collect from a cash or credit card payer.” Embracing the distinction between telling cash customers they receive a discount and card-paying customers they pay a surcharge as one of communicative significance, the court finds the regulations to be squarely within the realm of First Amendment scrutiny: “What the law does regulate is how sellers may communicate their prices. … In regulating the communication of prices rather than prices themselves, §518 regulates speech.”

Having said that, the court is done. Emphasizing that “we are a court of review, not of first view,” it offers not a word as to whether the statute would survive scrutiny under the First Amendment. It does not even summarize the appropriate test, merely identifying the two leading cases that the parties have identified as setting those standards. So the case will return to the 2nd Circuit for litigation of the validity of the statute under the First Amendment; the only thing that we know now that we did not know before is that the First Amendment applies.

Only a bare majority of the court agreed with the wholly minimalist disposition.  Justice Stephen Breyer, for his part, argued that it would be more useful in analyzing the statute to consider whether it “affects an interest that the First Amendment protects” than it is to consider simply whether it regulates “speech,” noting that “virtually all government regulation affects speech.” He suggested that if the statute in operation does “not hinder the transmission of information to the public [by a merchant] so long as it also revealed its credit-card price,” it should “receive a deferential form of review.” Acknowledging that the parties bitterly dispute how the statute operates in fact, he agreed that the problem should be considered first by the court of appeals. Similarly, Justice Sonia Sotomayor, joined by Justice Samuel Alito (a rare combination!) would have gone even further to respond to the uncertainty about the statute’s application; she recommended that the court instruct the 2nd Circuit on remand to use a “certification” procedure to seek an authoritative explanation of how the statute works from the highest New York state court (the New York Court of Appeals).

In the end, the only thing this case does is keep the litigation alive. Because the court vacated the 2nd Circuit’s dismissal of the merchants’ challenge to the New York statute, the lower courts will have further briefing and argument on that question. But the opinion says so little about the First Amendment that it is unlikely to shed much light on future controversies or illuminate academic inquiry. Nor does it even hint that the merchants should prevail in the litigation below. So this particular part of the merchants’ battle with credit-card networks about the price they pay to accept credit cards is far from over.

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Argument analysis: Justices hear horror stories about venue for patent litigation

At the oral argument Monday morning in TC Heartland v. Kraft Foods Group Brands, the justices finally got their chance to weigh in on one of the Federal Circuit’s most controversial rules – its longstanding conclusion that corporate patent defendants are subject to suit in any district in which they do business, as opposed to […]

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At the oral argument Monday morning in TC Heartland v. Kraft Foods Group Brands, the justices finally got their chance to weigh in on one of the Federal Circuit’s most controversial rules – its longstanding conclusion that corporate patent defendants are subject to suit in any district in which they do business, as opposed to only the state in which they are incorporated. The Supreme Court took the latter view in a 1957 decision (Fourco Glass v Transmirra Products), but the Federal Circuit has long thought that decision was irrelevant under the modern statutory venue framework.

The case involves the interplay between two venue statutes, a general statute (section 1391) and one that applies only to patent cases (section 1400). Section 1400 states that a “civil action for patent infringement may be brought in the judicial district where the defendant resides”; In Fourco, the last time the Supreme Court examined the statute, it concluded that corporations reside in “the state of incorporation only.” The general venue statute (Section 1391), by contrast, states: “For all venue purposes … [a corporation] shall be deemed to reside, if a defendant, in any judicial district in which such defendant is subject to the court’s personal jurisdiction with respect to the civil action in question.” Because large businesses are likely to have sufficiently pervasive business activities to be subject to personal jurisdiction throughout the nation, that section makes venue generally appropriate in most districts. The question before the court is which of those two understandings applies.

The justices seemed not at all settled on how to address that problem. Four strands of discussion provide a good characterization of the argument. The first was the idea, pressed repeatedly by Justice Ruth Bader Ginsburg, that it is at this point in time most unusual to limit venue for a business to a single location. Early in the argument, for example, she pressed James Dabney (appearing on behalf of defendant TC Heartland in support of the narrow venue rule): “Is there any other … venue provision in which venue for a corporation is only the place of incorporation?” She seemed particularly incredulous at the idea that the principal place of business should be excluded as an appropriate venue: “[E]ven for diversity purposes a corporation is … diverse based on not simply its place of incorporation, but [also] its principal place of business. Principal place of business counts. It doesn’t count under 1400!”

James W. Dabney (Art Lien)

Pressing the point again and again through Dabney’s presentation, Ginsburg found particularly telling Dabney’s concession that no statute explicitly limits venue so narrowly:

[Y]ou are asking us to say that venue in a patent infringement case is only where the entity is incorporated or comparable to that, and you have acknowledged that there is no other venue provision for any other kind of claim that is so limited to just the place of incorporation.

A second point, cutting the other way, is the difficulty of identifying exactly what Congress has done that could be treated as an intention to overturn Fourco. The point was made most clearly by Chief Justice John Roberts during the presentation of William Jay (appearing on behalf of plaintiff Kraft, seeking a broad venue rule): “[T]he current statute says ‘except as otherwise provided by law.’ And I would have thought that excluded overturning the Fourco decision.”

William M. Jay (Art Lien)

Similarly, Justices Ginsburg and Elena Kagan both noted that the American Law Institute proposal (on which the modern version of Section 1391 was based) recommended that Congress repeal Section 1400; Congress’ failure to do that seems to suggest an intention to leave Fourco in place. As Justice Kagan put it, “the ALI wanted to get rid of 1400, and Congress didn’t do that.”

A third point related to the problem of unincorporated associations. This case, for example, like many patent cases, involves a patent held by a limited liability company rather than a corporation. Traditionally, the rules of patent venue, as settled before World War II, have treated all unincorporated associations – partnerships, limited liability companies and the like – precisely the same as corporations. That is not, of course, the trend of modern venue statutes, which treat corporate venue distinctly from (and more broadly than) the venue of other associations.

The problem for the justices, though (especially for Justice Stephen Breyer), was how the court could announce a general rule in this case for corporations (the group for which the Fourco rule is most clearly out of step with contemporary conceptions of venue) when the case before it involves a limited liability company rather than a corporation. Jay engaged in a long colloquy with Breyer in which he explained that he did not want the court to dismiss the case on the basis that the corporate problem was not presented. Rather, Jay emphasized the LLC/corporation distinction as a problem that makes continued reliance on Fourco increasingly odd. Eventually Breyer suggested that the justices could ignore the corporate/LLC distinction as a separate basis for Texas venue in this case, decide the corporate question, and, if the court did not broadly overrule Fourco for corporations, allow Kraft to raise the problem before the Federal Circuit.

A fourth point seemed the most surprising – the general lack of interest among the justices in the horror stories about the concentration of venue in the Eastern District of Texas. The subject did come up, but in such a desultory way that it does not seem to be all that important to their thinking about the case. If anybody seemed concerned about the problem it was Roberts, who responded to a comment made by Jay with the interjection: “So we shouldn’t worry that 25 percent of the nationwide cases are there?” The other justices who addressed the problem, though, seemed to range from ambivalent to uninterested. In the ambivalent group, Kagan commented at one point that the “complaint” of the defendants is that the current rule “allows a kind of forum shopping,” in which plaintiffs can say “‘let’s go down to Texas where we can get the benefit of a certain set of rules.’” And Justice Anthony Kennedy simply asked whether “the … generous jury verdicts enter into this or is that something we shouldn’t think about?” Most pointedly, Breyer made it quite clear that the problem is not important to him, saying, “these amici briefs … they’re filled with this thing about a Texas district which they think has too many cases. What’s th[at] got to do with this?”

I come away from the argument with the strong impression that the vocal pleas of defendants seeking a limitation of venue have for the most part fallen on deaf ears. To the court, the case is much more about the jurisprudential problem of how – or whether – an old decision of the Supreme Court can cease to be binding without Congress ever really taking direct steps to eradicate it. Approached that way, the dispute does not lend itself to easy resolution. I would put this one down for a long period of deliberation.

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Argument analysis: Justices hesitant about extending ERISA to church-affiliated pension plans

Monday’s argument in Advocate Health Care Network v. Stapleton took the justices back to their roots, with a straightforward textual question about the breadth of coverage under Employee Retirement Income Security Act. ERISA imposes a variety of requirements on the plans to which it applies. Churches seeking to avoid that regulatory burden were able to […]

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Monday’s argument in Advocate Health Care Network v. Stapleton took the justices back to their roots, with a straightforward textual question about the breadth of coverage under Employee Retirement Income Security Act. ERISA imposes a variety of requirements on the plans to which it applies. Churches seeking to avoid that regulatory burden were able to obtain an exemption from ERISA for their pension plans. Organizations affiliated with churches operate a large share of the hospitals in this country. For more than 30 years, the three federal agencies that administer ERISA have treated the pension plans of those hospitals as exempt from ERISA. In each of the three cases consolidated for this oral argument, employees of health-care providers filed suit alleging that the pension plans provided by their employers do not qualify for the church-plan exemption. Specifically, the question is whether ERISA’s rules apply to pension plans operated by affiliates of churches, such as hospitals, if the church itself did not create the pension plan.

Deputy Solicitor General Malcolm L. Stewart (Art Lien)

The text of ERISA directly addresses the question. The only problem is that, at least until the justices decide these cases, it is unclear what ERISA has to say about it. For now, two phrases of the statute are relevant. First, ERISA does not apply to any plan “established and maintained for its employees by a church.” Second, a 1980 amendment provides that a “plan established and maintained for its employees … by a church … includes a plan maintained by an organization … controlled by or associated with a church.” The question is whether that revision means that a plan “maintained by an [affiliated] organization” is automatically treated as one “established … by a church.”

By the end of the argument, several of the justices seemed to coalesce around a likely outcome, reflecting an unwillingness to extend ERISA to cover plans that have been treated as exempt by the Internal Revenue Service and other federal agencies for 30 years. As a textual matter, each party’s position has an obvious weakness, and the justices explored those weaknesses when questioning the advocates.

Lisa S. Blatt for petitioners (Art Lien)

For Lisa Blatt, representing the health-care providers, the obvious problem is that the revision her clients need in order to qualify for the church-plan exemption could have been crafted much more directly. Justice Elena Kagan went to that point early on:

There would be a simple way of accomplishing what you think this provision accomplishes. You know, something along the lines of just saying any plan maintained by a church-affiliated organization is a church plan or something like that. It’s … very odd language, this statutory language, and I’m wondering why you think that Congress chose to do what you think it chose to do in this perplexing way rather than in a straightforward way.

Justice Sonia Sotomayor weighed in on the same point, noting that Congress had proposed an amendment that treated a plan “established and maintained” by an affiliated organization as one “established and maintained” by a church. She suggested that the case would have been much simpler for Blatt had Congress adopted that revision. Blatt seemed to satisfy Kagan and Sotomayor, however, by pointing out that one group seeking relief at the time of the 1980 amendment was comprised of plans established by churches but maintained by affiliated organizations; an amendment covering only plans “established and maintained by affiliated organizations” would not have exempted those plans.

James A. Feldman for respondents (Art Lien)

The justices also took issue with Feldman’s reading because it did not seem to exempt several categories of organizations that had been pushing most vociferously for an amendment at the time Congress stepped in to amend the statute. Sotomayor, for example, raised the problem directly:

Let’s go to … 1982. Tell me how your reading of the statute includes the organizations that were clamoring and … whom the IRS has said were covered by this provision: The pension boards that were separate from the church, and … the nuns, who were also seeking coverage. How does your reading take care of those two situations facing Congress?

Hearing Feldman’s response, Kagan interjected that she found his reading difficult because “you would be taking out some of these church pension boards that I thought were the sort of quintessential group that this was designed to include.”

The justices were also troubled by the adverse financial consequences of a ruling against the health-care providers. During her argument, Blatt asserted that the employees’ complaints sought penalties from her clients of $66 billion. Although the point did not seem to impress the justices at the time, it became a major focus of Feldman’s presentation when he suggested that the justices should not be overly concerned about reliance interests because the “cases are about primarily overwhelmingly forward-looking remedies.” That comment struck a nerve with Justice Samuel Alito, who interrupted to ask whether Blatt had been correct “when she said that the complaints seek billions of dollars in penalties?” Feldman started to respond that it was too early to be sure what the total amount of any penalties might be, but Alito would not let go: “What is the answer to my question?” When Feldman replied that he didn’t think the complaints named “a dollar figure for the penalty,” Alito asked: “Well, … if you figured out the penalties, would they be billions of dollars?” After Feldman demurred again, Alito switched to another tack: “[Y]ou said … don’t worry about the penalties; this is primarily about forward-looking things. And yet the complaints asked for the penalties. Are you willing on behalf of your clients to disavow any requests for penalties?” When Feldman predictably declined to waive any claim for penalties, Alito concluded: “Then how can you say it’s primarily about forward-looking things?”

In a similar vein, several of the justices seemed to find it inequitable to bring the affiliated-organization plans under ERISA given the widespread dissemination of the IRS’s view that the plans were exempt. Kennedy, for example, noted that the agency’s interpretation “led to hundreds of letters from the IRS. Is … that an exaggeration or … aren’t there hundreds of IRS letters approving [these plans]? … [I]t shows that an entity that had one of these plans … where there was some doubt was proceeding in good faith with the … assurance of the IRS that what they were doing was lawful.”

In the end, then, it seems quite likely that the affiliated organizations will retain their exemptions. The justices might not like the way the amendment is written, but they do not seem likely to reject the IRS’s reading of it.

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