Argument analysis: Justices parse Fair Labor Standards Act protections for service personnel at car dealerships

Argument analysis: Justices parse Fair Labor Standards Act protections for service personnel at car dealershipsEncino Motorcars v Navarro was up for a repeat performance yesterday, as the justices heard argument for the second time on the question whether the Fair Labor Standards Act protects the service advisors who greet you when you take your car to a dealership for service. The last time they heard the case, almost two […]

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Argument analysis: Justices parse Fair Labor Standards Act protections for service personnel at car dealerships

Encino Motorcars v Navarro was up for a repeat performance yesterday, as the justices heard argument for the second time on the question whether the Fair Labor Standards Act protects the service advisors who greet you when you take your car to a dealership for service. The last time they heard the case, almost two years ago, the justices decided that the 2011 Department of Labor regulation bringing those advisors under the FLSA was invalid – criticizing the department for an utter failure to explain its decision to depart from a longstanding status quo under which the advisors were not entitled to FLSA protections.

The 2016 opinion did not, however, offer any guidance on the ultimate question of coverage, which is back before the justices again this week. Because the justices decided last time that the department’s regulation is irrelevant, all of the discussion yesterday focused on the language of the statute, which exempts “any salesman, partsman, or mechanic” who is “primarily engaged in selling or servicing automobiles.”

James A. Feldman for respondents (Art Lien)

In general, the discussion revealed a group of justices no closer to a resolution of the problem now than they were two years ago. Four of the justices (Justices Stephen Breyer, Ruth Bader Ginsburg, Elena Kagan and Sonia Sotomayor) seem inclined to extend FLSA coverage to the service advisors. In general, that group of justices embraced the idea that the best way to read the statute is to match the job descriptions in the first clause separately with the verbs at the end – so it would apply to any salesman selling automobiles or any partsman or mechanic servicing automobiles, but not (implicitly) to any salesman servicing automobiles. As Breyer put it (ignoring the references to partsmen), “[y]ou have two words over here that are verbs, two words over here that are nouns. The first seems to go with the first, the second with the second.” Under that reading, the service advisors plainly would be excluded from the exemption because whatever they are doing, they are not primarily engaged in selling automobiles.

Even without reading the statute that way, those justices still seemed doubtful about bringing the service advisors under the exemption, because it is hard to see them as “primarily engaged in … servicing automobiles.” Kagan summarized that perspective:

When I think of these three categories of workers – service providers, partsmen, mechanics – to coin a couple of silly kinds of words, a service advisor is customer-facing. … [T]he primary job is to deal with customers, to sell them things, to liaison with them, to make sure they’re happy. Mechanics and also partsmen are car-facing. … [T]heir job is to do stuff with the car. … [T]heir focus is on the automobile, whereas the service provider’s focus is on the customer. That seems to me a pretty big divide, suggesting that the service providers are really, you know, salesmen, not servicers.

In the same vein, Ginsburg queried why the justices should “stretch service advisor to come within the mechanic who’s actually servicing when we know that the service advisor doesn’t even possess the skills to be engaged in servicing.”

On the other side of the case, Chief Justice John Roberts seemed deeply grounded in his own experience of car dealers, which seemed to leave him convinced that service advisors can be viewed as salesmen engaged in the servicing of automobiles. For example, at one point he commented that “they do look under the hood sometimes, right? You bring the car, you know, it’s making this noise, they go out and at least listen to the noise, and sometimes they can say right away.” At another, he discussed what he viewed as a “common understanding” that “if you over several years dropped your car off whenever you’re supposed to or whenever it’s broken and you talk to Fred about getting it fixed, … you would say ‘my service guy is Fred.’” In his view, it would be a routine use of language to “think of Fred as the person who services your car.”

From the argument alone, you would think that none of the other justices took the same view as Roberts, but it seems almost certain that Justices Clarence Thomas and Samuel Alito will be on that side of the case.  Though neither said a word yesterday, both dissented from Justice Anthony Kennedy’s opinion last time around, taking the view that the statute unambiguously excludes service advisors from FLSA protections.

So the decision is likely to come down to the views of Kennedy and Justice Neil Gorsuch.  For his part, Kennedy seemed torn, asking pointed questions of advocates on both sides of the case. Gorsuch, somewhat uncharacteristically, shed almost no light on his views, posing two simple questions about the precise language of the statute and listening without comment to the responses.

The argument also revealed an apparent frustration among some of the justices with the Department of Labor’s absence. Kagan pointedly noted that “the Solicitor General is not here in a case in which one would expect the government to be here,” and Breyer commented that “what we’re doing is we’re trying to parse … a fairly technical statute involving one of 40,000 different kinds of workers as part of a very general statute. Now, that to me rings a bell that if this isn’t a question for an agency, what is?” This is of course not the first case of the term in which the Trump administration’s labor policy has left the justices adrift. It comes on the heels of the October spectacle in Epic Systems v Lewis, in which the solicitor general appeared on one side of a case arguing in opposition to the National Labor Relations Board on the other. To be sure, every change of party in the presidency brings some disarray to the government’s litigation strategy. This transition, though, seems to be proceeding less smoothly than most.

Given the high likelihood of a divided bench, it would be unduly optimistic to expect a decision in this case any earlier than April.

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Argument preview: Justices to take second look at Fair Labor Standards Act protections for service personnel at car dealerships

Argument preview: Justices to take second look at Fair Labor Standards Act protections for service personnel at car dealershipsIf you had a sense of déjà vu when you saw Encino Motorcars v. Navarro on the January argument calendar, you had good reason: This is the second time up for this case, which considers whether the service advisors at automobile dealerships are exempt from the protections of the Fair Labor Standards Act. On its […]

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Argument preview: Justices to take second look at Fair Labor Standards Act protections for service personnel at car dealerships

If you had a sense of déjà vu when you saw Encino Motorcars v. Navarro on the January argument calendar, you had good reason: This is the second time up for this case, which considers whether the service advisors at automobile dealerships are exempt from the protections of the Fair Labor Standards Act. On its face, the case presents a simple question of statutory interpretation: whether a person holding one of those jobs falls within an FLSA exemption for any “salesman … primarily engaged in selling or servicing automobiles.” (I follow the odd though common description of the provision as an “exemption” – though it is excluding employees from a protection much more than it is exempting them from a burden.)

If that sounds tediously pedestrian, the background and context of the controversy make the dispute more intriguing. The baseline of the dispute was an early 1960’s provision of the FLSA that exempted all employees at automobile dealerships. Narrowing that provision – bringing some dealership employees under the FLSA – Congress in 1966 replaced the blanket exemption with a more tailored exemption limited to “any salesman, partsman, or mechanic” who is “primarily engaged in selling or servicing automobiles.”

Shortly after Congress adopted the narrowed exemption, the Department of Labor issued a regulation taking the view that service advisors fell outside the exemption – and thus were entitled to overtime protections. When courts uniformly rejected the department’s reading of the statute, the department gave in, conceding that it would not enforce the overtime protections against service advisors.

There the matter stood for more than a generation, until the department in 2011 issued a regulation returning to its original view that the exemption left service advisors protected by the FLSA. Given the decades of contrary practice, immediate litigation to challenge the department’s view was a foregone conclusion. Brought in California, the litigation produced a ruling by the U.S. Court of Appeals for the 9th Circuit in favor of the employees, based on that court’s view that it was obligated to defer to the department’s interpretation of the statute.

Responding to a conflict in the circuits, the Supreme Court granted review in 2016. The first time around, though, the Supreme Court failed to reach the ultimate question. Rather, in a remarkably narrow opinion written by Justice Anthony Kennedy, the court held that the department’s 2011 regulation was entitled to no deference because the department had “offered barely any explanation” for its decision to shift its views. Concluding that the department’s justifications for the new rule “fell short of the agency’s duty to explain” its change in position, the court vacated the decision of the 9th Circuit and remanded the case with instructions for that court to reconsider the matter without affording deference to the department’s rule. On remand, the 9th Circuit panel stuck to its position, holding once again that service advisors are protected under the FLSA, referring to “the reasons stated in [its] earlier opinion (except for those reasons concerning deference to the agency).”

This time around, with the vicissitudes of the department’s position taken off the table, the arguments focus almost entirely on the language of the statute. And those arguments, although presented in detail, are at their heart not complex. The car dealer (petitioner Encino Motorcars, represented by Paul Clement, a former solicitor general now in private practice) focuses on the repeated references in the statute to “selling” and “servicing.” Taking it as a given that the service advisors are “salesmen,” the dealer argues that “it would be nonsensical to suggest that a salesman primarily engaged in the selling of automobile servicing is engaged in neither selling nor servicing automobiles” (their emphasis).

For their part, the employees (a group headed by the named respondent Hector Navarro, whose counsel is James Feldman for the University of Pennsylvania Law School Supreme Court Clinic) join issue directly on the statutory question, offering a close reading of the statute under which it is not at all “nonsensical” to suggest that service advisors are not primarily engaged in selling automobiles and just as easy to reject the idea that they are primarily engaged in servicing automobiles, a labor category that describes the mechanic working on the automobile but not the advisor interacting with the customer.

The excellent briefing is a treat for mavens of statutory interpretation, as the parties offer a sustained debate on what to think about a statute that pairs three nouns in the first part of the sentence (“salesman,” “partsman,” “mechanic”) with two gerunds in the latter part of the sentence (“selling” and “servicing”). The dealer argues for a “distributive” treatment of the sentence – so that the exemption would reach any one of the three types of employees engaged in either of the listed activities. The employees trot out a Latin canon – “reddendo singula singulis,” which means something like “by distributing the individual items to their individual subjects.” According to the employees, the statute is best read to apply to any “salesman selling” an automobile and any “partsman or mechanic servicing an automobile.” Although I’d not heard of the canon before this case, it has a venerable lineage: It appeared in an opinion by Chief Justice John Marshall and was discussed favorably in “Reading Law: The Interpretation of Legal Texts,” by Justice Antonin Scalia and Bryan Garner.

One other notable feature of the case is the dog that didn’t bark in the briefs before the justices: the solicitor general. Last time, in October Term 2015, the federal government filed a strong amicus brief in support of the employees. This time around, the government has chosen not to participate. Technically this does not join the long list of about-faces by the government this term, but the justices surely will notice the lack of continued support by the solicitor general for the department’s view.

As we saw in the two rearguments on the October argument calendar, the justices tend to come well prepared to these repeat-argument performances, so I would expect the questioning next Wednesday to get to the heart of the matter pretty quickly. Given the high quality of the advocates, the argument is likely to shed quite a bit of light on what the justices are thinking.

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Argument analysis: Justices frustrated by “gibberish” in statutes limiting state-court adjudication of securities class actions

Argument analysis: Justices frustrated by “gibberish” in statutes limiting state-court adjudication of securities class actionsThe key word in today’s argument in Cyan, Inc. v. Beaver County Employees Retirement Fund was “gibberish” – the characterization by several of the justices of the text Congress provided in the Securities Litigation Uniform Standards Act of 1998. The argument revealed the justices’ frustration at the statute’s sloppy craftsmanship. The case involves the interplay […]

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Argument analysis: Justices frustrated by “gibberish” in statutes limiting state-court adjudication of securities class actions

The key word in today’s argument in Cyan, Inc. v. Beaver County Employees Retirement Fund was “gibberish” – the characterization by several of the justices of the text Congress provided in the Securities Litigation Uniform Standards Act of 1998. The argument revealed the justices’ frustration at the statute’s sloppy craftsmanship.

The case involves the interplay between two sections of the federal securities laws. 15 U.S.C. § 77v states that the “district courts … shall have jurisdiction … , concurrent with State … courts, except as provided in section 77p of this title with respect to covered class actions, of … actions … to enforce any liability … created by [the Securities Act of 1933].” However, as I explained in more detail in my preview, nothing in Section 77p restricts the jurisdiction of state courts over actions to enforce the Securities Act of 1933. The petitioner, Cyan (the defendant in the class action), argues that the provision bars concurrent jurisdiction over all “covered class actions,” whether based on state law or federal law, pointing to a definition of covered class actions in Section 77p. The class-action plaintiffs, Beaver County Employees Retirement Fund and others, argue that the provision bars jurisdiction over “mixed” state- and federal-law actions, pointing to a provision in Section 77p that bars securities class actions that rely on state (as opposed to federal) law. The government, offering yet another reading, agrees with the plaintiffs that the statute bars only the actions that rely on state law, but argues that defendants can remove all actions (based on state or federal law) from state court to federal court.

All the participating justices resisted the idea that any of those three readings flows readily from the actual language of Section 77v quoted above. So, for example, when Neal Katyal, representing Cyan, summarized his position that the statute broadly bars all state-court securities class actions – whether based on federal law or state law – Justice Ruth Bader Ginsburg responded that “Congress chose a rather obtuse way of saying that federal courts shall have exclusive jurisdiction. I could have simply said, in covered class actions related to claims under the ’33 Act, federal courts shall have exclusive jurisdiction, period, and that would be clear and everybody would understand and you would prevail. But the Congress certainly took a[n] odd route to getting there.” After suggesting that “this body could have written a much better statute than our friends across the street,” Katyal contended that “the anomaly on the other side is far worse.”

When Katyal tried to discuss the purpose of the statute as opposed to the text, Justice Elena Kagan resisted: “Could we … just talk about the text before we speak about the purpose?” Kagan then focused directly on what she saw as the central weakness of Katyal’s reading:

[T]he natural way to read that is we look at 77p, the whole thing, and we see what’s the “except” that’s provided [there]. We don’t look to an ancillary definitional provision that all it does is define a term. We look for a rule that might be in conflict, that could be taken to be in conflict, with the jurisdictional provision. … So, … it just seems as though your interpretation does a very odd thing textually when you read “except as provided” in Section 77p to say let’s look to a definition in that section.

Katyal tried repeatedly to justify his reading, but Kagan closed the discussion by commenting: “[I]f your reading were right, Mr. Katyal, it would be written something like: ‘Except with respect to [covered] class actions as defined in’ – not ‘as provided by’ – ‘as defined in 77p(f)(2)’ – not just ‘77p.’”

Justice Sonia Sotomayor shared Kagan’s doubts about Katyal’s reading. For her, the point of departure was “the presumption, and one that exists when there’s an ambiguity, that says we presume in favor of concurrent jurisdiction.” Given the apparent ambiguity of the statute, she contended that Katyal was calling for “a fairly extreme result … taking a very strong presumption, turning it on its head, and saying we’re ousting state courts o[f] jurisdiction o[ver] securities actions that have nothing to do with federal law.”

Sotomayor appeared particularly exercised by the application of Katyal’s reading to bar state-law actions even if they weren’t pre-empted by the Securities Act, asking:

In what other situation where we do not have a federal law that preempts a state law, have we ever permitted the federal government to tell the states that they can’t adjudicate a case under their own law?

You can pass a federal law that says this federal law precludes these actions. But if you don’t have one that says that, … how can you order the state court not to adjudicate a claim that is not precluded, … that is expressly not [pre]cluded?

Things didn’t go much more smoothly for Allon Kedem, arguing on behalf of the government for the view that Congress intended to permit removal of all actions to federal court. Justice Samuel Alito for one found that reading untenable:

Do you really think that whoever wrote this removal provision thought about all this stuff that you’re telling us now? … If they set out to do what you say this does, and they decided this is the way we’re going to do it, I think it’s so far from reality that it really strains credulity.

Kedem did, however, have the distinction of receiving a sympathetic comment. Justice Stephen Breyer posited a drafter “given a task … to do two things … to … get rid of these state actions [and] to remove the federal act cases into federal court.” For him, “this is the language that does it.” But Breyer immediately qualified his comment by suggesting that the removal result for which Kedem argued was so eccentric that “I would expect there would be a report and in this report there would be an explanation such as you gave me of the [text]. And my guess is there is no such report.” Kedem had to concede, as Alito suggested, that there is nothing in the legislative record to suggest that Congress had intended the removal reading that the government posited. Moreover, because the case in fact was not removed from state court, several justices (most notably Ginsburg and Justice Anthony Kennedy) seemed to think that the court could not properly consider Kedem’s reading in this case even if the justices did find it plausible.

The forceful questioning continued when Thomas Goldstein appeared on behalf of the plaintiffs, arguing that the statute should be read to match the jurisdictional provisions in section 77v to the preclusion provisions in section 77p, a position that would permit purely federal actions (like this one) to proceed in the state courts. Justice Neil Gorsuch commented that Goldstein’s reading left the statute so “superfluous” that it was “stating the blindingly obvious, … closing a door twice.”

Alito also criticized Goldstein’s reading: “What sense does that … make? The … state courts have concurrent jurisdiction over ’33 Act claims, except if a lawyer is foolish enough to include in the state court complaint the state claims that fall within the … prohibition? What sense does that make?”

Goldstein countered that Section 77v is “not intended to do very much. It’s a conforming amendment. We don’t think that the statute … is intended to accomplish very much.” But Ginsburg characterized Goldstein’s reading as a “road to nowhere” for the provision.

A comment of Alito near the beginning of Katyal’s presentation captured the justices’ frustration with the statutory language:

Our late colleague [Antonin Scalia] wrote a book called Reading Law, which provides guidance about how you read statutes. And I looked through that to see what we are supposed to do when Congress writes gibberish. And that’s what we have here. You said it’s obtuse. That’s flattering. And we have very smart lawyers here who have come up with creative interpretations, but this is gibberish. It’s … just gibberish.

Sharing Alito’s perspective, Gorsuch later asked Goldstein whether “[s]peaking of gibberish, aren’t we stuck with gibberish your way too? I mean, it seems like gibberish all the way down here.”

For Alito, the drafting went far beyond the normal range of ambiguity or lack of clarity. Indeed, he suggested at one point that the statute in this case was so poorly crafted as to make the judicial task impossible: “I mean, all the readings that everybody has given to all of these provisions are a stretch. I’m serious. Is there a certain point at which we say this means nothing, we can’t figure out what it means, and, therefore, it has no effect, it means nothing?” Presumably the justices won’t issue an opinion concluding that the statute means nothing. But the tenor of the argument suggests that they may have a hard time finding a reading to which all of them can subscribe.

[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: Justices debate Patent and Trademark Office’s rules limiting scope of inter-partes review

Argument analysis:  Justices debate Patent and Trademark Office’s rules limiting scope of inter-partes reviewThe second case of yesterday’s Supreme Court patent day was SAS Institute v. Matal. I would not have been surprised if this little statutory case had been a letdown after the constitutional concerns with which the justices began their morning in Oil States Energy Services v. Greene’s Energy Group. But the justices seemed just as […]

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Argument analysis:  Justices debate Patent and Trademark Office’s rules limiting scope of inter-partes review

The second case of yesterday’s Supreme Court patent day was SAS Institute v. Matal. I would not have been surprised if this little statutory case had been a letdown after the constitutional concerns with which the justices began their morning in Oil States Energy Services v. Greene’s Energy Group. But the justices seemed just as engaged in this one as they were in Oil States and, if anything, even less settled on how to move forward. Indeed, it is not much of an exaggeration to suggest that there were as many views on SAS Institute as there were talkative justices.

As I explained in the preview, this case involves the practice of the Patent Trial and Appeal Board’s instituting a “partial” inter-partes review, agreeing to review some but not all of the challenged claims of a patent. As the justices reaffirmed last year in Cuozzo Speed Technologies, LLC v. Lee, the statute gives the board unreviewable discretion over the decision whether to institute review; it only bars the board from initiating a proceeding unless it determines that “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.”

Justice Sonia Sotomayor dominated the early minutes of the argument, which began with Gregory Castanias arguing on behalf of the challenger, SAS Institute, against partial decisions by the board. Castanias emphasized the language of Section 318 of the Patent Act, which obligates the board to “issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” In his view, the board’s practice of partial institution violates the statute because it leads to a final decision that addresses only those claims as to which the board has instituted review.

Sotomayor, though, suggested that Castanias’ argument was disingenuous: “I’m not at all clear what it is you’re challenging here. Are you challenging the Board’s right to initiate partial adjudications or are you challenging the fact that they are not addressing all of the claims in their final decision? What is it that you’re actually asking us to review?”

When Castanias responded that the board should issue a decision with regard to the unreviewed claims, she pounced: “Ahh, you want to get around Cuozzo.” After Castanias resisted, maintaining that he was asking only that the board comply with Section 318, Sotomayor interjected:

[T]hat’s exactly what you want to do. … Well, I don’t see what else you’re trying to do, because what will you do? You will come up on appeal and say the Board was wrong in not instituting review of those other claims? That’s what Cuozzo was about, us saying you can’t do that. …

Because there is absolutely no way that that’s anything other than that. …. [I]f you’re not challenging their decision not to institute review, why would that make any difference?

Sotomayor also emphasized the incongruity of forcing appellate review of the unreviewed claims, suggesting that the approach Castanias advocates would be wholly impractical: “If the Board didn’t institute review of those claims, there would be an incomplete record with respect to those other claims.” Castanias argued that the record was adequate, pointing out that under the board’s rules his client’s petition for review included an expert declaration. Sotomayor remained unconvinced: “But if the Board didn’t institute review of those other claims, the other side has not had an opportunity to present its evidence in contravention of your expert. You’re asking the appellate court to decide patentability on the basis of an incomplete, undeveloped record.”

Justice Elena Kagan also challenged Castanias, but her concerns related to the language of Section 318. Castanias agreed with Kagan that the board had no obligation to address patent claims that were cancelled before the conclusion of the proceeding, explaining that as a practical matter those claims were “no longer in dispute.” But for Kagan, that concession made it difficult to credit Castanias’ view that the statute obligates the board to issue a decision on unreviewed claims.  As she put it, the statute makes no distinction between cancelled and noncancelled claims: “This one also is no longer in dispute. … And I think what the Board would say is that the same thing is true here, there’s nothing to adjudicate because they have said that it doesn’t pass the threshold, so they’re not in the business of adjudicating it.”

The broad statutory grant of discretion seemed to have persuaded Kagan, like Sotomayor, to tolerate the board’s practice.  In the end, Kagan concluded:

[O]ne of the stories that the statute as written seems to tell is of great discretion to the Board with respect to the institution decision. … It says you never have to institute; it’s your choice whether to institute; you can’t get review of the institution decision, which is our Cuozzo case; you get to write your own rules about the institution decision … . So it’s a little bit odd to say, well, here’s one thing you don’t have discretion over when it comes to institution: you can’t say these claims but not those claims. … In a context in which Congress said the institution decision is really for the Board, it’s a discretionary decision that lies in its bailiwick, why should we carve out that one thing?

Justice Stephen Breyer seemed to agree that the board’s approach, which allows it to focus its resources on the challenges that seem to it most substantial, makes sense as a practical matter. The language of the statute left enough “opening and ambiguity” to permit Breyer to accept Castanias’ reading of the text. He was reluctant to do so, he explained, because he “was having trouble … trying to imagine what the purpose would be of writing a statute the way you want, though I find it very practical to think of the statute as your opponents want it.”

Justice Anthony Kennedy offered yet another approach, proposing a Solomonic solution to Castanias: “Could the Board contact the parties and say, we will not grant review as to all of the challenges claimed, but if you reduce it to just claims 3 and 4, we will hear it? Could the Board do that?” Castanias happily embraced that solution, explaining that his client well might prefer to abandon the board’s process and proceed directly to litigation if it understood up front that the process would produce only a limited assessment of its claims. Kennedy offered the same suggestion to Jonathan Bond, who appeared on behalf of the government in defense of the board’s practice. As Kennedy put it, “why couldn’t the Board just say we decline to grant it unless you … eliminate this claim.” Kennedy seemed taken with this idea, pointing out that “then we can rule against you, and there’s no real problem, …  because the challengers might say … in that event, we’ll just go to the district court. We don’t want [a partial review].”

On the other side of the matter, Justice Samuel Alito and Chief Justice John Roberts repeatedly challenged Bond, arguing that the board’s practice cannot be reconciled with the clear command of Section 318. Alito derided Bond when Bond argued, as he had in his brief, that the reference to a claim “challenged by the petitioner” is ambiguous: “[Y]ou think that is a serious interpretation of this challenge — they challenged it in a discussion in their office. They challenged it in a discussion in a bar. It means challenged it in this proceeding. What else could it mean?”

Sotomayor intervened in Bond’s support, commenting that “there is one very telling sign that the ‘any patent claim challenged by the Petitioner’ has a different meaning, and that’s in 314 [the section that grants the Board discretion over instituting review], which says ‘claims challenged in the petition.’ If Congress intended claims challenged in the petition to be a part of 318, it could have used exactly the same words.” But Roberts seemed no more persuaded than Alito, commenting to Bond that his reading of the statute seemed “a fairly complicated and refined stretch of any claim challenged by the Petitioner.”

Justice Neil Gorsuch took yet another tack, suggesting that the statutory framework gives the board’s director a narrower authority than some of his colleagues had discerned: “I’d agree with you that you’[r]e given great disc[ret]ion on the standards for showing sufficient grounds to institute a review. I’m not sure, I guess you can help me on how that also includes the authority whether to grant review of this or that claim, the weeding out process.” As Gorsuch read the statute, “it might affect the reasonable likelihood inquiry and how the director is going to go about doing that, but … I guess it’s a little less clear to me how it also grants him authority or her authority to decide which claims to proceed with.”

Apparently wedded to the premise that the statute accords the director little or no discretion on the point at issue here, Gorsuch repeatedly offered the idea that Section 314 “cut[s] against the government … by suggesting that all the PTO needs to do is decide whether there is one claim that isn’t frivolous … that’s the sum total of its job under the plain terms. … [A]nd beyond that, it need not go further.” As he put it, “in 314 … all the PTO has to do is decide whether there is one non-frivolous claim. It’s a thumbs-up or a thumbs-down decision … that’s anticipated there, … not a claim-by-claim examination.”

The wide variety of views makes it foolhardy to suggest how the case will come out. The most I can say is that it seems most unlikely that the justices will find a consensus that can bridge the disparity between the apparently settled views of justices as much at odds as Sotomayor and Gorsuch seemed at the argument. I would expect a wait of several months followed by a divided decision. Ironically, this relatively slight question of statutory interpretation might end up being more contentious than the weightier constitutional issues considered earlier in the day in Oil States.

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Argument analysis: Justices hesitant to invalidate congressional scheme for re-examination of patents by Patent and Trademark Office

Argument analysis: Justices hesitant to invalidate congressional scheme for re-examination of patents by Patent and Trademark OfficeThe justices opened their December argument sitting with a pair of patent cases, both raising questions about the inter partes review process that Congress adopted in 2011 as part of the Leahy-Smith America Invents Act. First up was Oil States Energy Services v. Greene’s Energy Group, a high-stakes dispute that directly challenges Congress’ constitutional authority. […]

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Argument analysis: Justices hesitant to invalidate congressional scheme for re-examination of patents by Patent and Trademark Office

The justices opened their December argument sitting with a pair of patent cases, both raising questions about the inter partes review process that Congress adopted in 2011 as part of the Leahy-Smith America Invents Act. First up was Oil States Energy Services v. Greene’s Energy Group, a high-stakes dispute that directly challenges Congress’ constitutional authority. As I explained in more detail in my preview, petitioner Oil States contends that Congress violated Article III of the Constitution and the Seventh Amendment when it authorized the Patent and Trademark Office, acting at the behest of respondent Greene’s Energy, to invalidate an Oil States patent without affording Oil States an opportunity for a jury trial supervised by a federal judge.

Allyson N. Ho at lectern for petitioner (Art Lien)

As you would expect for a case raising constitutional questions that go directly to the institutional role of the judiciary, the justices came to the bench in a voluble mood. A spirited and wide-ranging argument suggested a considerable variety of perspectives, though in the end none of the justices seemed to have a strong interest in invalidating the new process.

One tack was to press the practical idea that (as Justice Ruth Bader Ginsburg put it) “there must be some means by which the Patent Office can correct the errors that it’s made, like missing prior art that would be preclusive.” When Allyson Ho (arguing on behalf of Oil States) agreed that the PTO can correct errors, Ginsburg and Justice Elena Kagan pressed her hard on why this particular error-correction mechanism is unconstitutional. Conceding that several earlier processes for error correction had been constitutional, Ho contended that inter partes re-examination is different because it effectively pits the patentholder against the alleged infringer rather than the government. Kagan in particular challenged Ho to define a clear line that would justify invalidation of this procedure but not the various error-correction mechanisms that preceded it:

Can I take you back to this question of where you would draw the line … between [the older procedures] and this? Because, as I understand what you would permit, those proceedings too can be initiated by a third party … [and] in those proceedings too, the third party can participate … can make known its views. So what’s the line? … [W]hat are the procedures that are here that you think make this essentially adjudicatory that are not in those other proceedings[?]

Ho suggested that the problem with the new procedure is that it is “trial-like,” but Kagan plainly found that inadequate: “And so what is [the defect]? Is it discovery? Is it … participation in the hearing? I just want to ground this in something.”

Justice Sonia Sotomayor joined in the discussion. Responding to Ho’s suggestion that participation by the third party is the central flaw of the new procedure, Sotomayor pointed out that under the pre-existing procedures:

You can’t write the PTO and say: I think this patent’s invalid, period. You have to supply them with a reason for doing what they’re doing. So why is that reason any different than actively participating and pointing the PTO in the right direction? What is so fundamentally Article III that changes this process into an Article III violation?

Sotomayor went on to offer another reason why she doubts the characterization of the new procedure as essentially a dispute between the third party and the patent holder: “[I]f the third party settles with the patent owner, the PTO can still continue the action, can still decide the question, can still participate on appeal. So it is a public issue that is being litigated or discussed or adjudicated, so isn’t that quite different than a normal adjudication?” Ginsburg seemed particularly taken with that point, more or less forcing Ho to acknowledge that it was “an error” for her to have said in her brief that “the PTO can’t go on … if the parties settle.”

Justice Anthony Kennedy had a somewhat different take on the problem, emphasizing the oddity of a constitutional rule that would limit Congress’ authority to specify the procedures for evaluating an asset that exists only by Congressional authority: He started by asking whether “Congress [could] say that we are reducing the life of all patents by 10 years?” When Ho didn’t dispute the point, he retorted: “[D]oesn’t that show that the patent owner has limited expectations as to the scope and the validity of the property right that he holds?”

Not surprisingly, Justice Stephen Breyer saw the case through a broader perspective on the administrative state:

I thought it’s the most common thing in the world that agencies decide all kinds of matters through adjudicatory-type procedures often involving private parties. So what’s special about this one, or do you want to say it isn’t special and all the agency proceedings are unlawful? Because a lot of them would fit the definition, I think, that you propose.

Ho tried to take the former approach, suggesting that it is rare to have administrative adjudications in which the government is not acting “as the enforcer,” but Breyer responded with examples of disputes among airlines, trucking companies and utilities, as well as between management and employees, all situations in which administrative law “judges” resolve disputes among private parties through trial-like proceedings.

A protracted historical discussion exemplified the depth of engagement. All agree that the constitutional boundaries of Congress’ authority depend on historical practice at the time of the framing. Ho pointed to a tradition of common-law adjudication of cases involving patent infringement, but Sotomayor took issue with her historical argument, citing a long-enduring practice of executive retraction of patents:

[I]s your position that somehow at the founding in 1789, given the replete English history of the crown and the Privy Council … sidestepping any judicial adjudication of validity, that in 1789 the founders intended to change that system as radically as to say, no, we’re not going to permit … the legislature to change the terms of a patent grant?

Apparently referring to an amicus brief filed by Alliacense Limited in support of Oil States, Sotomayor commented that even “[y]our strongest amici says that it had waned over time … But the fact that it waned didn’t mean it was eliminated, and it didn’t mean that the Privy Council or the crown thought that it no longer had those rights.”

Christopher M. Kise for respondent (Art Lien)

That is not to say that the argument went all that smoothly for Christopher Kise (arguing on behalf of the respondent, Greene’s Energy). His assertion that Congress had almost plenary authority to define the boundaries of patent grants struck a nerve with Chief Justice John Roberts, who responded:

[Y]our position, it strikes me, is simply that you’ve got to take the bitter with the sweet. If you want the sweet of having a patent, you’ve got to take the bitter that the government might reevaluate it at some subsequent point. … [H]aven’t our cases rejected that … proposition? We’ve said you … cannot put someone in that position. You cannot say, if you take public employment, we can terminate you in a way that’s inconsistent with due process.

The justices were particularly concerned about incidents in which the PTO director admittedly “stacked” the panels of particular cases in an effort to control the outcome of those cases – Roberts and Justice Neil Gorsuch both criticized that practice.

Gorsuch was by far the most critical of the inter partes review process, suggesting a view almost precisely the opposite of Breyer’s – that the Constitution might prohibit administrative adjudication altogether in any case in which the decisionmaker is not “adjunct” to an Article III court. Absent some arrangement “like a magistrate judge or a bankruptcy judge,” Gorsuch found it unsettling that there could be “a self-executing judgment issued by the director that, [even] if not appealed, has all the force of law of an Article III court.” As Gorsuch pointed out, the system doesn’t work that way “with respect to magistrate judges or anything like that. …[T]he district judge has to put its imprimatur on it before it has [full force and effect.]” To me, though, the critical comments sounded more like an effort to coalesce upon an explanation for exactly why the court should uphold the inter partes review procedure than an explanation of why it should invalidate the procedure.

Given the Supreme Court’s track record of sharply divided decisions in cases that explore the minimum requirements of Article III adjudication, it would be astonishing if the justices found a ready consensus here. My sense, though, is that there will be a strong majority to uphold the statute. The justices well might write with caution – and they might spend several months doing it – but I think it most unlikely that this case will lead the court to take as bold a step as invalidating a major congressional initiative like the inter partes review process.

[Disclosure: Goldstein & Russell, P.C., whose attorneys contribute to this blog in various capacities, is among the counsel on an amicus brief in support of 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 limits on securities class actions in state courts

Argument preview: Justices to consider limits on securities class actions in state courtsSecurities litigators have spent the last two decades working out the implications of two statutes Congress passed in the closing years of the last century, both designed to limit securities class actions. The first was the Private Securities Litigation Reform Act of 1995, known as the PSLRA. When that statute produced more of a flight […]

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Argument preview: Justices to consider limits on securities class actions in state courts

Securities litigators have spent the last two decades working out the implications of two statutes Congress passed in the closing years of the last century, both designed to limit securities class actions. The first was the Private Securities Litigation Reform Act of 1995, known as the PSLRA. When that statute produced more of a flight to state courts than it did a decline in class actions, Congress responded with the Securities Litigation Uniform Standards Act of 1998, known as SLUSA. It is a testament both to the high stakes involved in securities litigation and to the sloppy drafting of both the PLSRA and SLUSA that the Supreme Court has faced numerous questions of interpretation under those statutes. Indeed, to the outsider the most remarkable thing about the argument next week in Cyan, Inc. v. Beaver County Employees Retirement Fund may be how many basic questions about the two statutes remain unsettled.

Because Cyan does not involve any regulations, the Supreme Court confronts a pure question of statutory interpretation. And because the relevant statutes are so intricate, some considerable discussion of the contested provisions is necessary to elucidate the problem at hand. The first point to understand is the tradition of concurrent jurisdiction over securities claims. From the enactment of the Securities Act of 1933 during the Great Depression, Congress traditionally expected (and explicitly provided in the statute) that securities litigation would proceed in both state and federal courts. Thus, the statute always has stated (in 15 USC § 77v) that the “district courts shall have jurisdiction, concurrent with State courts, of actions to enforce any liability created by [the Securities Act of 1933].” Responding to the PSLRA-driven flight of securities class actions from federal court to state court, SLUSA added a major qualification to Section 77v, which now provides that the state courts exercise concurrent jurisdiction “except as provided in section 77p … with respect to covered class actions.”

The question in this case is whether that proviso bars from state court both mixed class actions (those that present claims under both federal and state law) and pure federal class actions (those that assert claims only under the Securities Act), or only mixed class actions. That question, not surprisingly, depends on exactly what Congress “provided in section 77p … with respect to covered class actions.” It turns out that Section 77p does several things of arguable relevance. One is that Subsection 77p(b) completely bars any state-court class action raising claims under state law (which would include a mixed class action), so long as the action is a “covered class action” and involves a “covered security.” Section 77p also defines those terms, providing that a securities class action is “covered” if it involves 50 plaintiffs and that a security is “covered” if it is traded on a national exchange.

The most that the Supreme Court can do then (because it doesn’t sit to write report cards assessing the quality of Congress’ literary craft) is decide whether it makes more sense to read the proviso as barring all covered actions or instead as barring only mixed class actions. On the one hand, the employees argue that interpreting the proviso as barring all covered actions confers a lot of important substantive content on a phrase that reads as if it is only cross-referencing substantive action that Congress took elsewhere. On the other hand, in Cyan’s view, reading the proviso as barring concurrent jurisdiction only over mixed actions doesn’t accomplish very much when Section 77p(b) already has barred them categorically.

Much of the briefing, especially by the amici, raises policy questions about the merits of state court versus federal court resolution of securities class actions. Cyan’s amici inveigh against the danger of permitting the wild and ungovernable state courts to torment our nation’s large businesses, and the employees stress the longstanding routine of trusting state courts to play the major role in adjudicating commercial litigation in our federal system. In the past, the Supreme Court has shown a willingness to read SLUSA as a compromise statute designed to eradicate some, but clearly not all, state securities litigation. Oral argument should provide an indication of whether the parties’ and amici’s policy arguments will influence the justices’ resolution of the statutory interpretation questions in this case.

[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: Justices to consider propriety of the Patent and Trademark Office’s rules limiting scope of inter partes review

The second case of the Supreme Court’s patent day next Monday is SAS Institute v. Matal. That case should be a relief; after considering the weighty constitutional concerns summarized in my preview in Oil States Energy Services v. Greene’s Energy Group, the justices will turn to a straightforward question of statutory interpretation. The statutory provision […]

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The second case of the Supreme Court’s patent day next Monday is SAS Institute v. Matal. That case should be a relief; after considering the weighty constitutional concerns summarized in my preview in Oil States Energy Services v. Greene’s Energy Group, the justices will turn to a straightforward question of statutory interpretation. The statutory provision at issue, like the constitutional problems the justices will confront in Oil States, involves the “inter partes review” process that Congress added to the patent law in 2011 as part of the Leahy-Smith America Invents Act.

As I explain in the Oil States preview, inter partes review provides a streamlined two-step administrative adjudication of the validity of recently issued patents. At the first step, the Patent Trial and Appeal Board reviews a petition challenging the patent and decides whether a full-blown review of the patent is appropriate. The statute says little about how the board should decide when a review proceeding is justified; the sole constraint bars the board from initiating a proceeding unless it determines that “there is a reasonable likelihood that the petitioner would prevail with respect to at least 1 of the claims challenged in the petition.” At the second stage, if it decides to institute a review proceeding, the board adjudicates the validity of the challenged patent, subject to review on appeal by the U.S. Court of Appeals for the Federal Circuit.

This case involves the board’s practice of limiting the scope of the review proceedings to the most serious allegations of error. Responding to the reality that patents often have numerous claims (the patent at issue in this case has 16), the board has developed a practice of instituting proceedings limited to the claims as to which it regards the challenges as substantial. In this case, for example, the petitioner, SAS Institute, challenged all 16 claims of the patent issued to respondent, a company named ComplementSoft; the board instituted proceedings limited to claims 1 and 3-10, declining to review ComplementSoft’s challenges to claims 2 and 11-16.

The problem with that partial institution of review arises at the end of the proceeding, when the statute obligates the board to “issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.” The board’s routine practice is to limit its final decision to the claims it actually has adjudicated (claims 1 and 3-10 in this case).

If upheld on appeal, the board’s final decision provides the last word on the validity of the claims that it addresses; the statute bars future challenges to those claims by the party that instituted the proceeding. The omission of the unadjudicated claims from that decision leaves those claims (claims 2 and 11-16) somewhat in limbo: The board has expressed the tentative view that the challenges to those claims are insubstantial, but without a final decision, SAS Institute cannot challenge the board’s decision on appeal. For its part, the Federal Circuit (the only court in which parties can challenge board decisions) has validated the current process. This case brings the scrutiny of the Supreme Court to bear on that problem.

As patent cases go, this one is about as straightforward as they come. It is a far cry from the murky and imprecise questions the court confronts when it considers issues of patentability (cases like Alice Corporation Pty. Ltd. v. CLS Bank International), the mind-numbingly intricate puzzles presented by specialized pharmaceutical regimes (cases like Sandoz v. Amgen), or the serious constitutional concerns the justices will have considered earlier Monday morning in Oil States. Rather, the case turns almost entirely on the statement in 35 U.S.C. § 318(a) that the board “shall issue a final written decision with respect to the patentability of any patent claim challenged by the petitioner.”

SAS’ case pretty much stands or falls on its contention that Section 318(a) “means what it says,” and that when the statute refers to any patent claim “challenged by the petitioner” it refers to the initial petition seeking inter partes review. SAS argues that the board’s practice of limiting its decision to the claims as to which it instituted review – a subset of all the claims challenged by petitioner – directly contradicts the unambiguous language of the statute. More generally, SAS criticizes the balkanization of adjudication that the PTO’s partial-institution rule generates. Because the PTO’s rule leaves the unadjudicated claims entirely outside the inter-partes-review process, those claims necessarily will be left for a separate track of litigation in the federal courts. To SAS, that result markedly undercuts the benefits of inter partes review.

For its part, the government vigorously defends the board’s practice. Four points are central. First, it is a great waste of resources for the PTO to adjudicate all of the claims presented in a petition for inter partes review. Congress gave the PTO broad and unreviewable authority to decide whether to hold those proceedings. The only guidance Congress gave the PTO was that it should only hold proceedings for cases that present substantial claims. Who can criticize a procedure that carves off the apparently insubstantial claims, preserving the agency’s resources for the adjudication of substantial claims? As an amicus (the Houston IP Law Association) emphasizes, a rule requiring the agency to hold proceedings for all claims whenever a single claim is substantial is necessarily a rule that limits the number of patents the agency can consider.

Second, it makes no sense as a matter of process for the agency to write an opinion rejecting a claim that it has not adjudicated; if the claim has not been adjudicated, it is much more sensible to leave the parties where they lie, with the preclusive effect of the inter partes proceeding limited to the claims that the agency actually adjudicates.

Third, SAS’ criticism of the balkanization that flows from the PTO’s partial-institution regime ignores the structure of the inter-partes-review process. As the government’s brief pointedly notes, the inter-partes-review statute is limited to certain specific kinds of claims (generally claims of novelty and obviousness). That limitation necessarily leaves judicial adjudication as the sole forum for all other claims (including, among other things, claims about patentability). Whatever the court does here, the process will remain to some degree balkanized.

Finally, and perhaps most importantly, the U.S. solicitor general argues that the statute is not nearly so clear as SAS suggests. In a provision addressing the conclusion of a review proceeding, it is surely sensible for the agency to read a reference to claims “challenged by the petitioner” to mean claims challenged by the petitioner in that proceeding.

The justices typically are quite active in patent cases. It also bears noting that the justices have shown a great willingness in the past to reject the judgments of the Federal Circuit and the PTO. Key to the argument, I expect, will be what the justices think about the PTO’s stated desire to allocate its limited resources to the most substantial patent challenges. If the justices credit that intent, it seems most unlikely that they will read the statute to prevent its implementation.

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Argument preview: Justices to consider constitutional limits on adjudicatory authority of Patent and Trademark Office

Argument preview: Justices to consider constitutional limits on adjudicatory authority of Patent and Trademark OfficeIt will be patent day at the Supreme Court when the justices return to the bench next Monday for their December sitting. The morning brings a pair of cases considering the “inter partes review” process that Congress added to the patent law in 2011 as part of the Leahy-Smith America Invents Act. The adoption of […]

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Argument preview: Justices to consider constitutional limits on adjudicatory authority of Patent and Trademark Office

It will be patent day at the Supreme Court when the justices return to the bench next Monday for their December sitting. The morning brings a pair of cases considering the “inter partes review” process that Congress added to the patent law in 2011 as part of the Leahy-Smith America Invents Act. The adoption of inter partes review implements Congress’ desire to shift a share of patent litigation away from the judicial process – criticized as slow and expensive – toward an administrative process that Congress (with considerable naiveté) expected would be swift, inexpensive and uncontroversial.

In general, inter partes review proceeds in two stages. First, competitors unhappy about the issuance of a patent file a petition asking the director of the Patent and Trademark Office to institute a review proceeding. After giving the patent holder an opportunity to respond to the petition, the PTO must decide within three months whether to institute a review proceeding; within the PTO, the decision is made by the Patent Trial and Appeal Board. If a competitor convinces the Patent Trial and Appeal Board that the PTO erred in issuing the patent, the board has the authority to invalidate the patent, subject to review by the United States Court of Appeals for the Federal Circuit.

The first case of the day will be Oil States Energy Services v. Greene’s Energy Group, a high-stakes dispute that directly challenges Congress’ constitutional authority to enact the administrative process of inter partes review. The dispute that presents those questions is remarkably pedestrian. Petitioner Oil States sued respondent Greene’s Energy, contending that Greene’s Energy was infringing a patent that Oil States holds on technology useful for preserving wellhead equipment in the oil and gas industry. Predictably, Greene’s responded by seeking inter partes review, hoping that the PTO would invalidate the Oil States patent. When the PTO concluded that the patent in fact was invalid, Oil States raised the stakes, arguing that Congress violated Article III and the Seventh Amendment when it authorized an administrative agency to invalidate the patent without affording Oil States an opportunity for a jury trial.

The Supreme Court’s consideration of Oil States is a major event because of the intertwined issues of commercial and constitutional consequence. For businesses interested in the patent process, the possibility that the court would eradicate the inter partes review process is momentous; the process has provided significant relief to the operating companies that are so frequently defendants in patent litigation and at the same time has markedly undercut the leverage that patentholders have to enforce rights under their patents.  Even putting collective filings of trade associations to the side, more than 100 companies joined in amicus filings. At the same time, because the case directly challenges the statute as an intolerable congressional intrusion on authority that the Constitution allocates to the judicial branch, it raises questions that go directly to one of the most challenging problems of constitutional adjudication. More than 100 academics joined in briefs offering their advice to the justices on those questions. All told, the 57 amicus briefs are the most in any case the justices have heard this term; to put that number in perspective, it’s been more than a year since the justices faced that many amicus filings in a single case. Admittedly, those filings pale before the 90-odd filings they have for Masterpiece Cakeshop the following week, but it is a remarkable level of attention for what is at bottom a commercial dispute between competing businesses.

On the merits, the argument challenging the statute is easy to summarize. At bottom, the idea is that Congress should not be able to remove litigation from federal courts just because it doesn’t like the answers courts give when they decide cases.  All agree that the leading motivation for the development of inter partes review was a broadly held perspective that the adjudicative process for patent litigation was working so poorly that it had become a drag on innovation. On the merits of the constitutional argument, all agree that the Supreme Court has used a historical test to assess the boundaries of the judicial power. However ludicrous it might sound as a matter of institutional design, it is only a slight exaggeration to say that the boundaries of Congress’ ability to design an effective patent regime will turn largely on the details of practice in the English courts of the mid-18th century. Thus, the briefs of the parties and their amici are redolent with the details of British proceedings going back to the Glorious Revolution in 1688. For its part, the patentholder, Oil States, underscores a longstanding British tradition of judicial adjudication of disputes about the validity and infringement of patents. Oil States views an abrupt departure from that tradition as an unacceptable intrusion on the Constitution’s regime of juries sitting in federal courts.

On the other side of the matter, the allegation that the statute is unconstitutional brings the government into the case as a party. The argument in support of the statute has several distinct strands. For one thing, patents exist wholly as a matter of administrative action. They are, and always have been, the product of an executive grant; the scope and significance of patent rights have never been a matter of common-law accretion. Thus, the allocation of decision-making authority to the executive branch does not raise the same questions as statutes that limit adjudication of common-law causes of action.

For another thing, there has been a long tradition of administrative procedures that reassess the decision to issue a patent. Where Oil States portrays the adoption of inter partes review as an avulsive shift diverting an unbroken course of adjudicative process into the administrative realm, the government portrays it as the most recent configuration of a long and varied series of processes that Congress has prescribed to permit the agency to correct its own mistakes without recourse to adversary litigation. As it happens, that tradition dates at least to the 17th century – when the Privy Council of England exercised the authority to revoke a defective patent in response to a complaint from competitors. Indeed, the historical evidence of common-law adjudication is considerably less plain than the briefs of Oil States and its amici suggest. Among other things, so far as I can tell the courts at law in the late 18th century routinely considered allegations of infringement, but it is much less clear (as an amicus brief from the Internet Association emphasizes) that those courts could entertain claims of invalidity. It is at least arguable that courts of the time considered claims of invalidity as a defense and did not themselves have the power to invalidate patents more broadly.

It would be understandable for a casual observer to think this is an obvious winner for the government: Who could take seriously the idea that the Supreme Court would announce that the Constitution does not give Congress the authority to do something so obviously practical as update the administrative process for patent review? Ordinarily, we would expect that Congress would have all but unreviewable discretion over those kinds of determinations. The lesson of the Supreme Court’s cases in this area, though, suggests that considerable caution is appropriate. The drafters of the Bankruptcy Code of 1978 were just as sincere as the drafters of this statute in their view that concerns of procedural efficacy justified replacing a badly broken judicial process with a more administrative process. Yet the Supreme Court had no hesitancy in invalidating the framework as an impermissible derogation from the judicial power – despite the Constitution’s explicit grant to Congress of authority to manage the bankruptcy process (parallel to the clause giving Congress authority over the patent system).

I think it is safe to say that the justices will come to the Oil States argument keenly interested in exploring the validity of Congress’ handiwork.

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

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Argument analysis: Justices struggle to find the “beef” in challenge to congressional authority to resolve pending litigation

Argument analysis: Justices struggle to find the “beef” in challenge to congressional authority to resolve pending litigationReaders worrying that Justice Neil Gorsuch is hogging time at oral argument may find more cause for concern when I lead with his “where’s the beef” quip from today’s argument in Patchak v. Zinke. But a post about a separation-of-powers case doesn’t offer enough choices for a good lede that I can ignore his efforts. […]

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Argument analysis: Justices struggle to find the “beef” in challenge to congressional authority to resolve pending litigation

Readers worrying that Justice Neil Gorsuch is hogging time at oral argument may find more cause for concern when I lead with his “where’s the beef” quip from today’s argument in Patchak v. Zinke. But a post about a separation-of-powers case doesn’t offer enough choices for a good lede that I can ignore his efforts. Pleasantries aside, though, the end point of a relaxed and thoughtful discussion this morning bodes ill for David Patchak’s effort to persuade the justices to invalidate a federal statute ratifying the decision of the Secretary of the Interior designating as Indian land a tract near Patchak’s home.

That’s not to say Patchak’s litigation efforts have not been impressive. His suit challenging the secretary’s decision has already been up to the Supreme Court once – leading to a remarkable 2012 ruling in Salazar v. Patchak that the Administrative Procedure Act waived the sovereign immunity of the secretary and that Patchak had standing to challenge the secretary’s action. Unfortunately for Patchak, the secretary (presumably tiring of the litigation) obtained a federal statute that explicitly ratified the secretary’s decision and purported to end the litigation, stating among other things that “an action … relating to the land [in question] shall not be filed or maintained in a Federal court and shall be promptly dismissed.”

Patchak’s challenge to the statute culminated in this morning’s argument, in which his counsel Scott Gant maintained that the statute crosses constitutional limits on congressional authority over the judiciary by declaring the result in specific litigation.  If winning a case on that basis is like driving a camel through the eye of a needle, this particular needle will probably remain intact. Despite a bench flush with distinct theories about the general problem, none of the justices seemed to show the least interest in striking down this particular statute.

Scott E. Gant for the petitioner

Gant began his argument by focusing on the closing words of the statute, which state – in language that seems to be directing a result in a specific case – that any pending actions “shall be promptly dismissed.” The problem with that argument, though, is that it runs head-on into the Supreme Court’s long-standing rule (based on the 1869 decision in Ex parte McCardle) that Congress has power to “strip” the federal courts of jurisdiction. Channeling her days as a law professor, Justice Elena Kagan explained, “We know that Congress can alter the jurisdiction of the federal courts. And we know that Congress can alter that jurisdiction and apply it to pending cases. We’ve said that over and over again. So what … would make this unconstitutional if we assumed that this is a jurisdiction-stripping statute?”

Relying on last year’s decision in Bank Markazi v Peterson, Gant argued that what Congress had done was improper because it “dictated the outcome of the case without changing the law.” But Kagan had no patience for that contention:

[T]he law is the jurisdictional law. That’s what Congress is changing. Congress is changing jurisdiction. In so doing, Congress is changing the law. We haven’t said Congress has to change … substantive law. Here Congress is changing jurisdictional law. It’s saying … yesterday you had jurisdiction over a certain category of cases. Today you don’t. Now, why is that unconstitutional?

Gant answered that the earlier part of the statute (stating that the action “shall not be filed or maintained”) is jurisdictional (and thus within Congress’ authority), but that Congress overstepped its authority when it explicitly directed dismissal of the action. At that point, Justice Neil Gorsuch interjected that Patchak can’t have a sensible complaint limited to Congress’ “directing the dismissal. [I]f that’s the only beef we have, is that really a beef at all because that’s a natural consequence of a jurisdiction-stripping statute as [in] McCardle itself, … so there’s nothing left. I think it’s almost a virtual quote from McCardle, right, there’s nothing left to be done but dismiss.  So where is the real beef here?”

Justices Ruth Bader Ginsburg and Samuel Alito seemed to take the same view, reading the statute as a straightforward example of conventionally permissible jurisdiction-stripping; both repeatedly pressed Gant to offer some explanation for a decision that would justify invalidating this statute without abandoning the century-long doctrine granting Congress authority in that area. As Kagan put it, “Why aren’t you saying that every time we said that, we were wrong; that any time Congress changes the jurisdiction of the federal court and then applies [it] to pending cases, that that’s a separation-of-powers issue?”

Justice Sonia Sotomayor went even farther. The parties and the justices for the most part took as common ground a discussion from Bank Markazi, suggesting (in Kagan’s rephrasing) that “if you had a piece of legislation that said in Jones v. Smith, Smith loses, that that would be unconstitutional.” Sotomayor, though, seemed to doubt that rule should apply at all in cases (like this one) to which the government is a party. Starting from the longstanding tradition that the sovereign has plenary control over its immunity from suit, she offered that as a basis for disposing of this particular case without addressing the jurisdiction-stripping implications of the specific language at issue:

I do think there’s a difference between the Congress coming in between two private parties and directing a result in favor of one private party. I think that’s a quintessential separation of powers question and a very, very serious one. But I think there is something fundamentally different about suits involving the government because … any suit against the government is a matter only of largesse and the government’s voluntary choice. We have repeatedly through the centuries said the government can at any moment take away its [abrogation of] sovereign immunity. …. So I see … less of a problem with separation of powers if … the government has withdrawn [its abrogation of] sovereign immunity than [in its] directing the outcome between private parties.

Ann O’Connell, assistant to the solicitor general

Several of the other justices, though, seemed much less comfortable with the sovereign-immunity point. At one point, for example, Chief Justice John Roberts commented to Ann O’Connell, who appeared on behalf of the government to defend the statute, that “on the sovereign immunity question, … that is the federal government sort of going nuclear. You know, … I’m like the king; you can’t sue me because I can do no wrong. And it seems to me there’s a real political accountability problem there because this statute doesn’t say anything about sovereign immunity.” Alito had a similar take on that point, doubting that the statute was specific enough to be read as reinstating the secretary’s sovereign immunity.

The most promising questions for Patchak came from Roberts, who seemed more concerned than any of the other justices about preserving the judiciary’s institutional integrity against potential congressional overreaching. So, for example, in an extended interchange with O’Connell, Roberts asked pointedly: “Does the government recognize any limit on Congress’s power to decide the result in a pending case?” When O’Connell offered the “Smith wins” hypothetical from Bank Markazi, he asked why that rule didn’t apply here. And when she argued that Congress had acted here by withdrawing jurisdiction rather than adopting a rule of decision, he retorted: “So Congress has plenary authority to insulate itself from separation of powers arguments? A statute that says in any case in which a statute is alleged to violate the separation of powers, federal courts have no jurisdiction. You think that’s okay?”

Pratik A. Shah for Pottawatomi Indians respondent

For Roberts, the case raised a more fundamental question, familiar to any reader who has taken a law-school course in federal courts, described by Roberts as “a famous dialogue between Professors Wechsler and Hart about whether Congress can achieve unconstitutional objectives by preventing federal courts from adjudicating claims that those provisions are unconstitutional.” As he pointed out, “during the civil rights era, there were a lot of proposals in Congress that said the federal courts have no jurisdiction over any case in which busing is sought as a remedy. And those types of proposals are consistently submitted whenever Congress attempts to achieve an unconstitutional result by depriving the federal courts of jurisdiction.” Returning to that point repeatedly, he seemed most reluctant to let the case rest solely on the jurisdiction-stripping point, remarking late in the argument that he finds Congress’ authority in that area “a real difficult question.”

As I suggested at the outset of this post, today’s argument revealed no serious indication that any of the justices wants to invalidate the particular statute about which Patchak complains. But because these cases tread so close to the court’s own institutional role, the justices take very seriously the problem of trying to describe exactly what types of congressional activity they will tolerate. I think all of the justices would regard this case as pretty close to the boundary of congressional authority, so the likelihood that they will coalesce on any broad statement validating the statute is slim. It is safe to expect an outcome typical of the Roberts court: either a brief, narrow and uninformative opinion joined by all or almost all of the justices, or a series of separate opinions airing the various justifications for tolerating what Congress has done.

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Argument analysis: Justices dubious about limiting bankruptcy court’s right to recover fraudulently transferred assets

Argument analysis: Justices dubious about limiting bankruptcy court’s right to recover fraudulently transferred assetsPerhaps a week with only two cases on the argument calendar gave the justices more time to prepare than normal. They certainly seemed to come to the argument in Merit Management Group v FTI Consulting with a strong predisposition about how to decide the case. As I explained in more detail in my preview, the […]

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Argument analysis: Justices dubious about limiting bankruptcy court’s right to recover fraudulently transferred assets

Perhaps a week with only two cases on the argument calendar gave the justices more time to prepare than normal. They certainly seemed to come to the argument in Merit Management Group v FTI Consulting with a strong predisposition about how to decide the case.

As I explained in more detail in my preview, the case involves the “avoidance” powers of the bankruptcy court, which generally permit the court to recover (“avoid”) dubious payments that bankrupts make before their bankruptcy filings. The provisions are intricately drafted, with numerous detailed exceptions – excellent terrain for law-school exam questions! This case involves a “safe harbor” exception that protects transactions in the securities industry; that provision bars recovery of any “settlement payment” made under a “securities contract” if the payment is made “by or to” a financial institution. The transaction here involved a transfer of assets between parties that were not themselves financial institutions; to make the transfer, the assets had to pass through a financial institution. The U.S. Court of Appeals for the 2nd Circuit has held for many years that those “conduit” payments are protected from avoidance; the U.S. Court of Appeals for the 7th Circuit in this case disagreed.

From the earliest moments of the argument, it seemed clear that the justices were skeptical of the 2nd Circuit’s position. Brian Walsh rose first, arguing that the securities exception protected Merit Management, the recipient of the payment. But before Walsh could get to his third sentence, Justice Anthony Kennedy interrupted to ask why an exemption protecting a settlement payment should be relevant if “that’s not the transfer … that the trustee seeks to avoid.” When Walsh explained his view that the exception protects securities-related payments whenever they happen to be made through a financial intermediary, Justice Ruth Bader Ginsburg cut him off sharply to ask, “why should it matter whether the transmission was through the banks rather than handed over [directly]?”

Walsh insisted that the provisions were designed to protect the securities industry, but an incredulous Justice Sonia Sotomayor quickly broke in to comment:

I understood that the safe harbor was not intended to protect people involved in financial transactions. … If Congress wanted to do that, why bother even creating the fraudulent transfer provisions? Just say any contract that any of these people sign in any of these fields is exempt.

Moments later, Justice Samuel Alito took the discussion back again to the same simple question from which Kennedy had started: “So why shouldn’t the … exemption be applied to the transfer that the trustee is seeking to avoid, as opposed to intermediate transfers that … are not constructively fraudulent?”

Justice Stephen Breyer weighed in a few moments later, trying out a hypothetical that he regarded as “the paradigm case of a fraudulent conveyance,” in which “knowing I’m about to go bankrupt, I take my share [in a company], and I tell them go transfer it to my wife.” When Walsh confirmed that his reading of the statute would exempt that transaction, Breyer commented ominously: “So this … is going to cover all kinds of things.”

I could go on, but suffice it to say that by the time Walsh sat down, each of the justices other than the characteristically taciturn Justice Clarence Thomas had taken a turn challenging Walsh’s position. It is common, of course, after the justices have dealt harshly with the first attorney to appear before them, for them to turn about and question counsel on the opposing side just as aggressively.  But not this time, as the justices showed no interest in challenging Paul Clement, who argued on behalf of the creditors seeking to recover the payment.

Rather, the justices spent most of Clement’s time debating exactly what an opinion in his favor should say. Kennedy, for example, worried about the proper bounds of such a ruling: “Well, if we’re writing the opinion to accept your proposition, how do we qualify it?” Similarly, the justices wondered whether there is any substantial difference between Clement’s position and the position presented in an amicus brief by a group of law professors (probably not).

The most interesting interchange came close to the end of the argument, when Justice Elena Kagan, a former solicitor general, asked Clement, also a former solicitor general, if he had any idea why the government did not participate in the case: “I’ve never seen a bankruptcy case, maybe ever, but certainly a bankruptcy case like this one, in which we do not have a Solicitor General brief.” Clement was understandably unable to shed light on the government’s decision not to file, though he did comment that “if what we were urging on you was really a catastrophe for the markets or something else, boy, I sure think the SG would be here … waving at least a yellow flag.”

My preview suggested that the justices would view this as a straightforward textual case, and the argument suggests that they’ve coalesced around a decision affirming the decision of the 7th Circuit. Considering the court’s light argument calendar this fall, we can expect an opinion in this one long before spring.

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