Argument analysis: Breyer and Kagan seek middle ground on damages for patent infringing exports

Argument analysis: Breyer and Kagan seek middle ground on damages for patent infringing exportsThe justices’ second argument this morning was WesternGeco v Ion Geophysical Corp., a case that requires the justices yet again to consider  Section 271 of the Patent Act. Although the Patent Act generally does not apply to conduct outside the nation’s borders, that section imposes a narrow (and controversial) exception that permits a suit for […]

The post Argument analysis: Breyer and Kagan seek middle ground on damages for patent infringing exports appeared first on SCOTUSblog.

Argument analysis: Breyer and Kagan seek middle ground on damages for patent infringing exports

The justices’ second argument this morning was WesternGeco v Ion Geophysical Corp., a case that requires the justices yet again to consider  Section 271 of the Patent Act. Although the Patent Act generally does not apply to conduct outside the nation’s borders, that section imposes a narrow (and controversial) exception that permits a suit for infringement of a domestic patent when components are made in the United States and shipped abroad for assembly into the patented device.

The particular question here involves the damages available to the patentholder. Ordinarily, in a purely domestic patent case, the patentholder would be entitled to both a reasonable royalty (what the infringer would have paid if it had licensed the technology from the patentholder) and lost profits (opportunities lost because of the infringement). Here, for example, the infringer (the respondent ION) was ordered to pay a royalty of about $12 million for manufacturing and shipping components that, when assembled, would infringe patents of petitioner WesternGeco. Separately, the lower court ordered ION to pay damages of about $90 million that WesternGeco would have earned if it had been able to sell service contracts to the overseas purchasers of the assembled devices. Although at first glance the two parts of the award seem to overlap, all agree that the damage award would be proper if all of the activity occurred domestically. The narrow question for the justices is whether WesternGeco can get both the royalties and the lost profits damages.

As a group, the justices seemed far from settled on a resolution. About the only thing that seemed clear from the argument was that few if any of the justices are ready to accept WesternGeco’s argument that it is more or less automatically entitled to the damages – that the enactment of Section 271 (labeling ION’s conduct infringement) is enough to justify the full range of conventional patent remedies without regard to the location of the conduct. Justice Neil Gorsuch, for example, commented to Paul Clement (representing the patentholder) that “you don’t have a … lawful monopoly to use this technology abroad. That doesn’t belong to you. …. And so why would you get lost profits … because of a third party’s use entirely abroad? …. Your patent doesn’t run to the high seas, and so your uses aren’t protected there.”

In a similar vein, Justice Stephen Breyer was pervasively worried about the “comity” implications of the dispute – the concerns other countries might have with an American rule imposing large damages for commercial activity outside the borders of the United States and wholly lawful in the country where it occurs. So, for example, at one point he asked Zachary Tripp (appearing for the government in support of the patentholder) to consider what might happen if:

France ha[d] this law that you want here, right? Joe Smith goes to France one day and he makes a tiny particle, which it turns out violates somebody else’s French patent. He ships it back to the United States, where it forms a small part of a very large and valuable gizmo. And all of a sudden, we discover that he’s paying the entire profits of the entire gizmo industry to some French company that had a small patent on a small part. Now all I have to do is generalize from that and I think, my God, we have a lot of problems here.

For Breyer, the entanglement with foreign commerce was troubling: “I can see how that would, in fact, upset foreign countries a lot, because, after all, it wasn’t even a violation of any foreign patent law.” Returning to that theme repeatedly, Breyer emphasized his concern about the potential backlash from a decision in favor of the patentholder. “I mean, if we can have a law like this, so can every other country. … I mean, suppose 10 countries do this.  I try to think about that and I see chaos or confusion. And that point, I think part of comity is, what happens if everybody does it?”

At the same time, several justices were reluctant to protect the infringer entirely under a so-called presumption against extraterritorial reading of statutes – a presumption that the Patent Act should not be read to apply overseas without Congress’ explicit approval.  Justice Samuel Alito, for example, thought such a ruling could not be reconciled with the text of the statute:

If you have a liability provision that says there is liability for acts that are committed abroad, what sense does it make to say, well, although Congress thinks there should be liability for these acts committed abroad, we have to analyze the remedial provisions separately to see whether they wanted any remedy for these acts that are committed abroad?

Alito’s resistance to the infringer’s argument is particularly disheartening for the infringer, because Alito wrote the court’s last major decision on the presumption against extraterritoriality.

Similarly, Justice Anthony Kennedy repeatedly pressed Kannon Shanmugam (who defended the lower court ruling protecting the infringer) to admit that he was seeking to protect his client from the consequences of its infringing behavior: “[Y]our position is that the petitioner is not entitled to full compensation for its injury? That’s your position?”

Justice Ruth Bader Ginsburg seemed to reach a similar position from a different baseline, suggesting that copyright law would contemplate fully compensatory damages in a case like this one: “Isn’t that exactly how the copyright law is applied under the so-called predicate act doctrine? The copyright owner can get damages flowing from the exploitation abroad of domestic acts of infringement. Isn’t this an application to the patent field of the same doctrine?”

You might think that a stark division would flow from the tension between the comments of Ginsburg and Kennedy (concerned about departing from the routine norm of full compensation) with the comments of Gorsuch and Breyer (concerned about the broad reach of American law necessary to provide full compensation). But Breyer and Justice Elena Kagan seemed to be pushing for a middle ground, in which courts would use tort-law concepts of “proximate cause” to limit free awards of damages for conduct only tenuously related to the domestic activity of the infringer. Kagan, for example, suggested to Shanmugam that his parade of horribles was nothing more than a “classic law school proximate-cause hypo. I mean, that’s what that hypo is. And it suggests that if there’s a problem here, it’s a problem about where you draw the causal line. It’s not a problem about some categorical extraterritoriality rule.” Welcoming Kagan’s suggestion, Breyer explained near the end of the argument that a proximate-cause limitation on the ready availability of lost profits in cases like this one would resolve his concerns about comity:  “If you have a tough proximate-cause law, … you will stop people from being fully compensated, but the reason you do it is because you’re afraid with 92 district courts and juries and so forth, it’ll get out of control and be a kind of major problem with other countries.”

In the end, then, I expect a fair amount of back and forth among the justices before they come to rest on this one. I wouldn’t expect the kinds of virulent dissents that we see so commonly in late-June decisions, but I do think it will take quite a while for the justices to settle on positions from such disparate starting points.

The post Argument analysis: Breyer and Kagan seek middle ground on damages for patent infringing exports appeared first on SCOTUSblog.

from http://www.scotusblog.com

Argument preview: Justices turn to constitutional limits on appointment of administrative law judges

Argument preview: Justices turn to constitutional limits on appointment of administrative law judgesThe justices face a lot of high-stakes cases the last week of the term – with Abbott v. Perez on Tuesday and Trump v. Hawaii on Wednesday – but Monday’s argument in Lucia v. Securities and Exchange Commission may be as important a decision for the administrative state as any case the justices have heard […]

The post Argument preview: Justices turn to constitutional limits on appointment of administrative law judges appeared first on SCOTUSblog.

Argument preview: Justices turn to constitutional limits on appointment of administrative law judges

The justices face a lot of high-stakes cases the last week of the term – with Abbott v. Perez on Tuesday and Trump v. Hawaii on Wednesday – but Monday’s argument in Lucia v. Securities and Exchange Commission may be as important a decision for the administrative state as any case the justices have heard all year. The case involves the Constitution’s appointments clause, which requires that all “officers” of the United States be appointed by the president, by the “courts of law,” or by the “heads of departments.” This case involves the administrative law judges (commonly known as ALJs) of the Securities and Exchange Commission, who traditionally have not been appointed by the SEC, much less the president or the judicial branch. If those ALJs are officers, then their appointments have been unconstitutional.

The particular challenger here is one Raymond Lucia, an investment adviser found by an SEC ALJ to have violated a variety of antifraud provisions of the securities laws. But he is joined by the solicitor general appearing on behalf of the executive branch to argue that the Constitution requires treatment of ALJs as officers subject to the appointments clause. Only at first glance would it seem strange that the government is supporting the challenger: A broad reading of the appointments clause brings direct control of a larger share of the federal bureaucracy within the hands of the president and his political appointees and makes it harder for Congress to shelter government operations from political influence. Thus, when the justices turn to this case, they will find no brief at all from the SEC; the brief in support of the existing system comes from Anton Metlitsky at O’Melveny & Myers, appointed by the justices to argue as an amicus curiae in support of the judgment below that the existing appointments accord with the Constitution.

On the merits, the argument that the appointments are invalid is a powerful one, largely because the activities of ALJs are so similar to the activities considered by the Supreme Court in its 1991 decision in Freytag v. Commissioner, which held that “special tax judges” of the Tax Court qualified as officers for purposes of the appointments clause.  Like the ALJs involved here, those officers supervised trial-like proceedings, formed an evidentiary record and reached preliminary decisions in the matters before them. If the justices decide to take seriously the opinion and analysis in Freytag, then the challenge here will have a great deal of credibility.

The strongest argument in support of the existing arrangement is that the judges here are not officers because nothing that they do is actually effective as a decision of the SEC until the SEC approves it – the ALJ decisions are only tentative and have no effect until the SEC acts.  Similarly, the ALJs cannot themselves sanction parties for contempt or issue subpoenas compelling parties to appear or produce information; all such actions must come from the commissioners themselves. Metlitsky argues for a bright-line rule that a federal employee is not an officer subject to the appointments clause unless Congress delegates to that officer the authority to bind the government or agency. Because they lack that authority, the ALJs at issue here should not, Metlitsky argues, be regarded as officers. As for Freytag, Metlitsky can only urge that the analysis in that opinion could be regarded as nonbinding dictum because the tax judges in fact did have the authority to issue binding decisions in some cases (though not in the case before the Supreme Court). More generally, amici supporting the status quo argue with considerable force that a ruling broadly applying the appointments clause hamstrings the modern administrative state by forcing Congress to broaden the range of political (patronage) hiring as opposed to civil-service (merits-based) hiring.

I would not paint the scenario accurately if I did not mention the back story against which this particular case arises – the swirling controversy about the SEC’s burgeoning use of its in-house tribunal for enforcement proceedings. Since the 2010 adoption of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC has markedly ramped up the use of that in-house tribunal for enforcement proceedings that in previous decades would have been conducted in a federal district court. It is surely unfortunate for defenders of the status quo that the particular process before the Supreme Court has been the subject of increasingly vehement attacks alleging bias over the last several years. The judge in this particular case, for example, did not rule against the SEC a single time in his first 50 cases and adopted a bright-line rule of issuing lifetime bans on employment in the investment industry against any defendants who had the nerve to contest the proceedings against them.

Several effective amicus briefs add considerable nuance to that narrative. On the one hand, an amicus brief from professors Urska Velikonja and Joseph Grundfest presents the results of Velikonja’s empirical analysis of the SEC enforcement proceedings, which indicate that the SEC is no more likely to prevail when it uses its in-house tribunal than it is when it proceeds in federal court. In a brief supporting the petitioners, the New Civil Liberties Alliance offers a detailed (and sobering) argument that the SEC’s process for picking ALJs leads systematically to the selection of individuals with no experience or expertise in securities law, the exact opposite of the meritocratic “civil service” model that is the central justification for the modern administrative state. It is ironic that the permissibility of a process that insulates ALJs from political appointment should come before the justices in a context in which the outcomes seem to be so far from independent, but that is the case the justices have before them.

The oral argument may be crucial here. Several of the justices have stated in previous cases that they regard ALJs generally as officers subject to the appointments clause (Justice Anthony Kennedy, by his joinder in the Freytag opinion, and Justices Stephen Breyer, Ruth Bader Ginsburg and Sonia Sotomayor in more recent decisions). If those four maintain that view, it will be difficult for Metlitsky to find five votes to uphold the status quo. I would watch particularly for the reaction of Justice Elena Kagan, whose scholarly background is likely to give her a strong reaction to the competing interests. In the end, though, the ramifications of the decision for the administrative state are so stark that the justices surely will take some time to consider this case closely, even in a month when they’ll face racial gerrymandering (in Abbott) and the president’s travel ban (in Trump). I would put this one down for the last half of June.

The post Argument preview: Justices turn to constitutional limits on appointment of administrative law judges appeared first on SCOTUSblog.

from http://www.scotusblog.com

Argument preview: Justices to grapple again with patent infringement overseas

Argument preview: Justices to grapple again with patent infringement overseasOn the first morning of the Supreme Court’s April session next week, the justices will return to problems of extraterritorial patent infringement, hearing argument in WesternGeco v Ion Geophysical Corp. For the third time in recent years, the court will consider Section 271 of the Patent Act. The statute was adopted in response to the […]

The post Argument preview: Justices to grapple again with patent infringement overseas appeared first on SCOTUSblog.

Argument preview: Justices to grapple again with patent infringement overseas

On the first morning of the Supreme Court’s April session next week, the justices will return to problems of extraterritorial patent infringement, hearing argument in WesternGeco v Ion Geophysical Corp. For the third time in recent years, the court will consider Section 271 of the Patent Act. The statute was adopted in response to the court’s 1972 holding in Deepsouth Packing v Laitram Corp. that the Patent Act does not provide a remedy for overseas patent infringement. Deepsouth was an early example of a presumption against extraterritoriality, which has come to loom quite large in the Supreme Court’s recent jurisprudence. Traditionally, under that canon of construction, a statute applies only to conduct within the United States unless Congress explicitly indicates a contrary intent.

In the particular case of Deepsouth, though, Congress moved quickly to reject a categorical protection for overseas infringement. Specifically,  Section 271 provides a narrow exception that permits a suit for infringement of a domestic patent when components are made in the United States and shipped abroad for assembly into the patented device. In Microsoft v AT&T, in 2007, the justices clarified how the statute applies when software is transmitted from the United States but copied overseas. Last term, in Life Technologies v Promega, the justices considered how many components have to be shipped overseas for the statute to apply. The issue here is whether the damages for a violation of Section 271 can include not only royalties on the infringing assemblies, but also lost profits for overseas contracts the patentholder would have obtained if the infringement had not occurred.

WesternGeco (formerly Western Geophysical) owns several patents that are used to search for oil beneath the ocean floor. Ion manufactured and shipped abroad components that, when assembled, infringed the WesternGeco patents. Accordingly, Ion was held liable under Section 271 and obligated to pay WesternGeco a reasonable royalty for the assemblies that it had exported (about $12 million). WesternGeco also showed that it would have earned $90 million in profits from contracts that it would have made with Ion’s customers had Ion not sold them the assemblies. Because patentholders ordinarily are entitled under Section 284 of the Patent Act to recover lost profits in addition to royalties, the district court awarded the lost profits. On appeal, however, the U. S. Court of Appeals for the Federal Circuit vacated the lost-profits award, reasoning that WesternGeco would have performed the lost contracts overseas, and that awarding damages for the loss of those contracts was an impermissibly extraterritorial application of the patent law.

WesternGeco, the patentholder, argues that the presumption against extraterritoriality should have little or no role here, because Section 271 was enacted as an exception to that presumption. From that perspective, a court that finds infringement that falls within the exception carved out by Section 271 should award traditional patent damages as a remedy for that conduct. Any other result, WesternGeco contends, would leave the patent holder undercompensated for indisputably sanctionable infringement.

For its part, the infringer, Ion, maintains that the presumption against extraterritoriality must be applied separately to each statutory provision. Because nothing in Section 284 suggests an intention to sanction extraterritorial conduct, the presumption against extraterritoriality should make courts cautious to award damages for hypothetical contracts that would have been performed wholly outside the boundaries of the United States. In an effort to rebut WesternGeco’s argument that denial of lost profits leaves a patentholder undercompensated, Ion emphasizes that WesternGeco already has received a reasonable royalty for the infringing assemblies. Awarding lost profits that are several multiples of a reasonable royalty, Ion suggests, cannot be justified without some reference in Section 284 justifying extraterritorial application.

Because the presumption against extraterritorial application is an entirely judicial gloss, it is not easy to predict how the justices will react to these arguments. My guess is it would be most useful to watch for the views of Justice Samuel Alito (who authored an opinion broadly applying the presumption against extraterritoriality in 2016, in RJR Nabisco v. The European Community) and Justice Sonia Sotomayor (who wrote last term’s opinion in Life Technologies narrowly interpreting Section 271). I would expect those justices to be as skeptical of the patentholder’s arguments as anybody.  Without their support, Ion will have a tough time eking out an affirmance of the Federal Circuit.

 

The post Argument preview: Justices to grapple again with patent infringement overseas appeared first on SCOTUSblog.

from http://www.scotusblog.com

Opinion analysis: Justices reject Fair Labor Standards Act protections for service personnel at car dealerships

Opinion analysis: Justices reject Fair Labor Standards Act protections for service personnel at car dealershipsThere was no surprise yesterday in the justices’ resolution of Encino Motorcars v. Navarro, holding service advisors at car dealerships exempt from the Fair Labor Standards Act. The argument suggested that the justices would be deeply divided, and it offered no reason to think that the three justices who voted against the service advisors the […]

The post Opinion analysis: Justices reject Fair Labor Standards Act protections for service personnel at car dealerships appeared first on SCOTUSblog.

Opinion analysis: Justices reject Fair Labor Standards Act protections for service personnel at car dealerships

There was no surprise yesterday in the justices’ resolution of Encino Motorcars v. Navarro, holding service advisors at car dealerships exempt from the Fair Labor Standards Act. The argument suggested that the justices would be deeply divided, and it offered no reason to think that the three justices who voted against the service advisors the last time this case was before the court (Chief Justice John Roberts and Justices Clarence Thomas and Samuel Alito) would view the matter any differently this time. Those three, along with Justices Anthony Kennedy and Neil Gorsuch, joined Thomas’ opinion rejecting the contrary ruling of the United States Court of Appeals for the 9th Circuit. Justice Ruth Bader Ginsburg’s dissent garnered the four remaining votes.

Justice Thomas with opinion in Encino Motorcars v. Navarro (Art Lien)

The case involves an exemption from the FLSA’s overtime requirements for employees at car dealerships, an exemption that has waxed and waned for much of the 80 years since Congress first enacted the statute. The problem began in 1961, when Congress amended the FLSA to exempt all employees at car dealerships. Five years later, though, Congress narrowed the exemption, limiting it to “any salesman, partsman, or mechanic primarily engaged in selling or servicing automobiles.” The coverage of service advisors was disputed from the beginning – as they certainly are not “partsmen,” and also do not seem to be salesmen selling automobiles or mechanics servicing them. The Department of Labor initially held that the exclusion did not vitiate protections for service advisors, but the federal courts in a pre-Chevron era marked by less deference to administrative agencies’ interpretations of ambiguous statutes rejected the department’s view. Responding to the unsuccessful litigation, the department acquiesced to the federal-court rulings in 1978, issuing a formal opinion letter excluding service advisors from FLSA protections.

In 2011, however, during President Barack Obama’s first term, the department issued a new regulation reiterating its original view that the exemption did not leave service advisors unprotected. The 9th Circuit upheld that regulation, deferring to the department’s view under Chevron, but the Supreme Court in a 2016 opinion reversed the 9th Circuit, holding that the department’s failure to justify the change of view in 2011 made deference inappropriate. On remand, the 9th Circuit (not getting the message) adhered to its view that the service advisors were protected, this time relying directly on the language of the statute. Predictably enough, that decision led to a second hearing before the justices, culminating in yesterday’s definitive ruling against the service advisors.

All agree that the issue here is whether service advisors are “salesm[e]n … primarily engaged in … servicing automobiles.” Thomas’ opinion for the majority finds that they are. For one thing, it is easy to say that their activity selling services makes them salesmen in the “ordinary meaning” of the term. Nor is Thomas troubled much by the question whether they are primarily engaged in servicing automobiles. For the majority, pointing to the broad range of tasks they perform, service advisors “are integral to the servicing process.” The majority acknowledges that “service advisors do not spend most of their time physically repairing automobiles,” but emphasizes that the same is true of partsmen. The inclusion of partsmen in the statute means that “the phrase ‘primarily engaged in … servicing automobiles’ must include some individuals who do not physically repair automobiles themselves but who are integrally involved in the servicing process.”

Thomas next rejects the idea that the so-called “distributive” canon of statutory construction requires limiting the statutory category of salesman to those who sell cars and limiting the category of mechanics to those who service them – by “distributing” the verbs at the end of the clause (“sell” and “service”) specifically to the nouns at the beginning of the clause (“salesmen” and “mechanics”). Thomas points out that the “disjunctive meaning of ‘or’” is by far the most prevalent and that the distributive canon makes little sense when there are three nouns (“salesmen,” “partsmen” and “mechanics”) to be allocated over the two verbs (“sell” and “service”).

Dropped into the textual discussion is the more colloquial suggestion that “[i]f you ask the average customer who services his car, the primary, and perhaps only, person he is likely to identify is his service advisor.” If the suggestion strikes you as a bit out of place in Thomas’ textual discussion of discursive and distributive readings, I should point out that it well may come from the chief justice – it echoes a folksy comment Roberts made at the argument that “if you over several years dropped your car off whenever … it’s broken and you talk to Fred about getting it fixed, … you would say ‘my service guy is Fred’ and commonly “think of Fred as the person who services your car.” Perhaps Fred is disappointed this morning that he didn’t get a personal mention in the opinion!

The closing pages of the opinion ascend from the details of the text to questions of much greater generality – and import.  First, Thomas considers the 9th Circuit’s reliance on “the principle that exemptions to the FLSA should be construed narrowly.” The five justices in the majority unequivocally “reject this principle as a useful guidepost for interpreting the FLSA.” Quoting one of Justice Antonin Scalia’s last opinions, Thomas explains that “the narrow-construction principles relies on the flawed premise that the FLSA ‘pursues its remedial purpose at all costs.’” Because the “exemptions are as much a part of the FLSA’s purpose as the overtime-pay requirement,” Thomas insists that the court “ha[s] no license to give the exemption anything but a fair reading.” Notably, as Justice Ruth Bader Ginsburg’s dissent emphasizes, Thomas’ discussion of the point does not so much as mention the earlier cases, spanning “more than half a century,” in which the court adopted that principle.

The opinion’s last topic is the absence of legislative history about service advisors, which motivates a highly quotable passage on the irrelevance of legislative silence:

Even for those Members of this Court who consider legislative history, silence in the legislative history, “no matter how clanging,” cannot defeat the better reading of the text and statutory context. If the text is clear, it needs no repetition in the legislative history; and if the text is ambiguous, silence in the legislative history cannot lend any clarity.

Encino did not seem like a big case at the argument, but my guess is that the closing pages of the opinion will have quite a bit of staying power. FLSA exemptions are frequently litigated, and several of the amici weighed in heavily to emphasize the importance of reaffirming the narrow-construction principle (the view of the National Employment Lawyers Association) or discarding it (the view of the Chamber of Commerce). The end of narrow construction could be sending shock waves through FLSA jurisprudence in the lower courts for years to come. In the same way, the crisp dismissal of legislative silence provides a highly visible passage likely to rack up frequent citations from judges dubious of legislative history.

The post Opinion analysis: Justices reject Fair Labor Standards Act protections for service personnel at car dealerships appeared first on SCOTUSblog.

from http://www.scotusblog.com

Argument analysis: Justices dubious about limiting precedent that tolls statutes of limitations to permit “stacked” class actions

Argument analysis: Justices dubious about limiting precedent that tolls statutes of limitations to permit “stacked” class actionsThe audience didn’t hear quite what it expected yesterday when the Supreme Court turned to the class-action realm at the argument in China Agritech v. Resh. As the most casual observer of the justices would know, several of them in recent years have evinced increasing levels of concern (if not panic) about large securities class […]

The post Argument analysis: Justices dubious about limiting precedent that tolls statutes of limitations to permit “stacked” class actions appeared first on SCOTUSblog.

Argument analysis: Justices dubious about limiting precedent that tolls statutes of limitations to permit “stacked” class actions

The audience didn’t hear quite what it expected yesterday when the Supreme Court turned to the class-action realm at the argument in China Agritech v. Resh. As the most casual observer of the justices would know, several of them in recent years have evinced increasing levels of concern (if not panic) about large securities class actions. A separate group also has been pushing the idea that courts should get out of the business of using vague equitable doctrines to adjust the deadlines that Congress adopts for plaintiffs to initiate litigation. So a case pushing both of those buttons should be a tough one for plaintiffs’ counsel (David Frederick in this case) and smooth sailing for the defendants trying to eradicate the class (represented here by Seth Aronson). But that was not at all what transpired at the argument, as most of the justices expressed grave doubts about limiting earlier precedents that suggest that the action in this case is permissible.

A brief word of background. The problem in the case involves applying the statute of limitations to class actions. Suppose that a group of plaintiffs file a class action, which lingers on in litigation for a few years and then finally is dismissed for one reason or another (suppose that the plaintiffs are not good representatives for the class). If the statute of limitations runs before the first class action is dismissed, can individuals not involved in the first effort bring their own action later? American Pipe and Construction Co. v. Utah says yes, at least if the individuals file their own separate actions. Specifically, American Pipe holds that the statute of limitations is “tolled” (suspended) during the pendency of the first class action. The question here is whether those individuals can bring their follow-on actions as a class or must instead bring them separately as individuals.

Notwithstanding the recent swath of cases dubious about the benefits of class actions, the justices for the most part were quite skeptical of the idea that claimants under American Pipe could bring their claims only as individuals. As Chief Justice John Roberts put it early in the argument, “If you just read it on its face, the statute of limitations hasn’t run because of American Pipe, … so why shouldn’t that rule be available to you?” In the same vein, Justice Elena Kagan commented that “the whole theory of American Pipe was that for any given individual, we weren’t going to make them come forward; we were going to say reliance on a class action is sufficient. So here, these people were doing just that. They were relying on a class action.”

Justice Sonia Sotomayor also weighed in critically, pointing to provisions of the Private Securities Litigation Reform Act that give small-dollar plaintiffs a strong incentive not to file their own actions by requiring courts to select the plaintiffs with the largest claims as class representatives:

[I]f my financial interest is moderately sized or small sized, there’s no inducement for me to do anything other than what American [Pipe] tells me to do, which is to wait until the class issues are resolved before stepping forward. … [Y]our regime is encouraging the very thing that American Pipe was trying to avoid, which is having a multiplicity of suits being filed and encouraging every class member to come forth and file their own suit.

Roberts and Justice Stephen Breyer seemed particularly concerned about the practical effects of Aronson’s rule, which would require follow-on plaintiffs to adjudicate their claims separately. Roberts, evincing his wonted concern for overcrowded federal trial dockets, asked with apparent incredulity: “So what they all have to do is they all have to file individual claims – every member of the class?” More expansively, Breyer asked Aronson about a hypothetical in which “[a] lawyer walks into the judge’s chambers and says here in my hand I have 10,000 complaints and … they’re identical, would it be all right to consider those as a class, just those?” Aronson’s response that individual adjudication would be the only option did not seem to sit well.

That is not to say that the argument was totally one-sided. Both Roberts and Justice Neil Gorsuch, for example, were concerned about the possibility that the rule Frederick sought for the plaintiffs could lead to a long series of sequential “stacked” class actions. Raising that concern, Gorsuch asked: “[C]an you stack them forever, so that try, try again, and the statute of limitations never really has any force in these cases? What do we do about the congressional judgment that there should be a statute of limitations?” In the same vein, Roberts, offering an explanation for why American Pipe might apply differently to subsequent classes, suggested that “one reason that the second might be different [from] the first [is that] if you allow the second, you’ve got to allow the third and then the fourth and the fifth. And there’s no end in sight.”

Gorsuch and Sotomayor also explored the possibility that the reason for denial might be relevant. In some cases, courts refuse to certify a class because the complaint is not suitable for class adjudication – the Supreme Court’s recent ruling in Wal-Mart v. Dukes held that the claims of the Wal-Mart employees in that case did not raise sufficiently common factual questions to warrant class-based adjudication. In cases like that one, bringing a second class action before a second judge may amount to little more than an effort to shop for a favorable judge. Gorsuch noted that existing rules oddly do not really obligate trial judges in the second class action to defer to the rulings of a trial judge who decided to dismiss the first class action. Other cases, though, do not present that problem, because the reason for dismissal of the first class action involves a defect in the particular class representative; courts occasionally dismiss cases under the PSLRA rules mentioned above. In that case, a second class action filed by a proper plaintiff is less an attempt to evade the first ruling than a response to the ruling that solves the problem. Gorsuch and Sotomayor seemed much less concerned about permitting stacked classes in the latter group of cases – when (as Sotomayor put it) “the only deficiency was in the plaintiff not in my class.” Their discussion with Frederick on that topic, though, did not suggest an easy way to interpret American Pipe to draw that distinction.

In sum, an argument not nearly so hostile to the proposed class as recent cases might have suggested, but still leaving open the possibility of a limitation of American Pipe to prevent stacked class actions.

[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 respondents in this case. The author of this post is not affiliated with the firm.]

The post Argument analysis: Justices dubious about limiting precedent that tolls statutes of limitations to permit “stacked” class actions appeared first on SCOTUSblog.

from http://www.scotusblog.com

Argument analysis: Justices dubious about tribal immunity from state-court actions to adjudicate title to land, but hesitant to embrace new theory

Argument analysis: Justices dubious about tribal immunity from state-court actions to adjudicate title to land, but hesitant to embrace new theoryIt was a tale of two arguments yesterday in Upper Skagit Indian Tribe v. Lundgren. The first half of the argument featured most of the justices offering scorching criticism of the idea that the tribe could be immune from state jurisdiction over off-reservation land; the second half featured the same group of justices complaining to […]

The post Argument analysis: Justices dubious about tribal immunity from state-court actions to adjudicate title to land, but hesitant to embrace new theory appeared first on SCOTUSblog.

Argument analysis: Justices dubious about tribal immunity from state-court actions to adjudicate title to land, but hesitant to embrace new theory

It was a tale of two arguments yesterday in Upper Skagit Indian Tribe v. Lundgren. The first half of the argument featured most of the justices offering scorching criticism of the idea that the tribe could be immune from state jurisdiction over off-reservation land; the second half featured the same group of justices complaining to counsel for the landowners that the argument in their favor was not ripe for decision.

The case is refreshingly simple. The Upper Skagit Indian Tribe purchased a parcel of land north of Seattle near the Canadian border; the land adjoins but is outside the tribe’s reservation. The Lundgren family has owned land just to the south of that parcel for many decades, and discovered shortly after the tribal purchase that a strip of the land that they have been occupying all those years (demarcated by a World War II-era fence) was included within the land sold to the tribe. When the tribe refused to sell the parcel to the Lundgrens, they filed a suit to “quiet” title, claiming that their use of the land for the last two generations had given them title to the strip by “adverse possession.”

The issue before the Supreme Court involves the tribe’s argument that as a sovereign, it is immune from suit in the Washington state courts. The Washington Supreme Court rejected the tribe’s plea of immunity, reasoning that the immunity does not apply because this is a suit “in rem” (against the land) rather than a suit “in personam” (against the tribe).

The first part of the argument must have seemed promising to Eric Miller, counsel for the Lundgrens: Sitting at counsel table, he had the luxury, without saying a word, of listening to the justices hound David Hawkins (counsel for the tribe) with all of Miller’s best arguments. The tone of Hawkins’ argument was set three sentences into his presentation, when Justice Ruth Bader Ginsburg interrupted to ask pointedly: “Is it not the case that no other political entity would be immune from such a quiet-title suit, not the United States, not a state of the United States, not a foreign government? So you’re claiming a kind of super-sovereign immunity for the tribe that no one else gets.”

It soon became clear Ginsburg was not alone in that assessment of the tribe’s position. Justices Elena Kagan, Stephen Breyer and Anthony Kennedy also came to the argument with what seemed to be a settled view that traditional principles of sovereign immunity “refute” the tribe’s claim of immunity. As Kagan repeatedly explained, sovereign immunity “typically by common law and historically includes this exception for immovable property,” under which sovereign immunity would not extend to land owned by one sovereign in the territory of another. As Breyer put it – after tossing off references to three continental treatises he had consulted before the argument – “if you were to have a quiz – ‘What was the law of sovereign immunity in 1760?’ — , … I guess you’d have to say the law was that [if] the prince buys a department store in Iowa, … he’s just like another Iowan.”

Ann O’Connell (appearing on behalf of the government to support the tribe) challenged Kagan on that point, arguing that Kagan was calling for an “exception” to the general rules of sovereign immunity, and that the justices should leave it to Congress to enact statutes implementing exceptions.  But Kagan was unpersuaded: “[M]y point is not whether it should be denominated an exception or not an exception but whether this is the kind of historic, traditional, long-standing rule that we shouldn’t expect Congress to have to put in, that it just sort of goes into the doctrine because that is part of the doctrine from long, long ago.” Kennedy weighed in to support Kagan, commenting to O’Connell that “[y]ou call it … an exception. Others may call it just a limit to the general rule. …. So that’s just playing with words.”

As if it weren’t bad enough that four justices seemed settled on the view that the tribe’s immunity argument contradicts traditional immunity principles, an overlapping group of justices seemed flabbergasted by the practical consequences of immunity in cases like this one, offering a series of pointed hypotheticals. Justice Samuel Alito led the way with his “ripped-from-the-headlines” example:

Let’s say a state or the federal government wants to construct a highway or maybe it’s a pipeline, and there’s opposition to this project, so the people who are opposed to the project enlist an Indian tribe to buy a little parcel of land along the route of this highway or this pipeline. That would be the end of the project, would it not?

In the same vein, Kennedy commented to Hawkins with incredulity: “Under your view of this case, suppose the tribe, on land that it owns in a state but outside the reservation, puts up a high-rise building in violation of the zoning law. They’re exempt? They can develop anywhere without reference to zoning laws?”

By the end of O’Connell’s presentation, a solid majority (Kennedy, Ginsburg, Breyer, Alito and Kagan) seemed firmly settled on the propriety of the “immovable property” exception to sovereign immunity. But a surprising shift of tone occurred when Miller finally came to the podium for the landowners.

The problem for the landowners is the distinction between an “in-rem” exception and an immovable-property exception.  The Washington Supreme Court ruled for the landowners based on an “in-rem” exception that it discerned in the Supreme Court’s decision in County of Yakima v. Confederated Tribes and Bands of Yakima Indian Nation, which would protect the tribe from any litigation directly against property (whether real or personal). Miller argued that the landowners should prevail under an immovable-property exception, which applies only to real property, and which he grounds in historical principles of sovereign immunity that predate the Constitution.

The tribe’s reply brief contended that Miller’s shift of argument was an unfair surprise and that the question was not properly before the justices. And however slight the distinction might seem as I described it above, most of the justices seemed to agree.

Early in Miller’s presentation, for example, Justice Neil Gorsuch got Miller to “agree that Yakima doesn’t control.” But armed with that concession, Gorsuch asked, “[W]hy isn’t it enough for the day for this Court to resolve a split of authority over whether Yakima controls in cases like this and return it to the Washington Supreme Court where you can present all these wonderful arguments you’ve raised here for the first time”?

Miller tried valiantly to argue that the differences between “immovable property” and “in rem” rules are immaterial, but Kagan clearly had thought about the problem at length – she reported having sketched “a little Venn diagram for myself” before the argument – and was not in the least bit persuaded:

I think there are real differences in the scope of the immovable property exception on the one hand and an in rem exception on the other hand. And clearly the Washington court talked about the in rem exception. Now you’re coming in and you have an extremely strong argument about this immovable property rule, but it’s not the same argument that the court in Washington made.

Kagan went out of her way to praise the substance of Miller’s argument, but she could not agree with his characterization of it as a simple tweak to the arguments presented in the state courts:

This is the way I … see what’s happened in this case, and again, you can tell me if I am wrong. You took over this case and you read this opinion and you said this is not a very good theory. There is a really good theory here. And I’m going to make that. And that’s what good lawyers do. I’m not at all criticizing you. It’s just it’s a new theory, … it’s not just even a new argument. It’s … a completely new way to win this case.

Justice Sonia Sotomayor seemed to crystallize the justices’ traditional reluctance to rule on late-presented arguments, suggesting that if the litigants took the time to allow the issue to “get aired fully” in the lower courts, the justices could resolve the problem with more confidence. In the same vein, Kagan commented that she was “a little bit worried that” potential “amici [didn’t] kn[o]w about this theory. … And I think it would be … just a bad way of dealing on our part if we allowed parties to come in, even with the best of faith, and said I have a new theory for you that … really the only people who got a chance to reply are the Petitioners in a 20-page yellow brief.”

Miller’s presentation ended with a solid majority of the court (Breyer, Kagan, Alito, Sotomayor and Gorsuch) appearing to take a strong view against reaching the immovable-property argument. So I think it is pretty easy to predict the result here: a short opinion vacating the decision of the Washington Supreme Court based on Miller’s concession, with a remand to give that court a chance to consider the arguments the justices found so persuasive. Miller may have won the argument about the right legal rule, but it looks like he won’t walk away with a win in the case from the justices.

The post Argument analysis: Justices dubious about tribal immunity from state-court actions to adjudicate title to land, but hesitant to embrace new theory appeared first on SCOTUSblog.

from http://www.scotusblog.com

Opinion analysis: Justices affirm continued authority of state courts over securities class actions

Opinion analysis: Justices affirm continued authority of state courts over securities class actionsThe oral argument in Cyan, Inc. v. Beaver County Employees Retirement Fund was notable for the repeated expression by the justices of frustration at the “gibberish” Congress provided in the Securities Litigation Uniform Standards Act of 1998. I suggested in my post about the argument that it would be surprising if they went so far […]

The post Opinion analysis: Justices affirm continued authority of state courts over securities class actions appeared first on SCOTUSblog.

Opinion analysis: Justices affirm continued authority of state courts over securities class actions

The oral argument in Cyan, Inc. v. Beaver County Employees Retirement Fund was notable for the repeated expression by the justices of frustration at the “gibberish” Congress provided in the Securities Litigation Uniform Standards Act of 1998. I suggested in my post about the argument that it would be surprising if they went so far as to hold that the language has no meaning at all. But yesterday’s opinion by Justice Elena Kagan for a unanimous court comes pretty close to doing precisely that; a plain-language summary of this opinion would simply state that “if Congress wants to make any important changes to litigation of federal-law securities cases in state courts, it is going to have to be a lot more specific than it has been to date.”

As that summary suggests, Cyan involves the recurring tension between the strong federal interest in regulating national securities markets and the longstanding tradition under which federal and state courts have shared the task of adjudicating securities cases. Federal securities law starts from two New Deal statutes – the Securities Act of 1933 and the Securities Exchange Act of 1934. The 1933 Act requires companies that offer securities to the public to make accurate disclosures of relevant information. Violations of that statute traditionally have been actionable in state and federal court. Indeed, Congress so trusted the state courts with that litigation that it barred removal to federal court of actions filed under the 1933 Act in a state court. Ordinarily, because an action under the 1933 Act would “arise under federal law,” the defendant would have been able to remove it; the 1933 Act’s anti-removal provision is thus a notable feature of that statute. The 1934 Act, by contrast, regulates the trading of existing securities (typically on national exchanges); federal courts have exclusive jurisdiction over suits under the 1934 Act.

In the 1990s, Congress amended the securities laws twice, acting on both occasions to rein in perceived abuses involving securities class actions. The first revisions were in 1995, in the Private Securities Litigation Reform Act. That statute made both substantive changes (which would apply to federal-law actions wherever brought) and procedural changes (which would apply only in federal court). Predictably, plaintiffs responded by bringing actions in state court (thus avoiding the procedural hurdles of the PSLRA) or under state law (thus avoiding the substantive hurdles of the PSLRA) or both (avoiding the PSLRA entirely).

The PSLRA-driven rise of state-law and state-court class actions led to the second set of amendments, embodied in SLUSA. The central feature of SLUSA is a ban on “covered” class actions based on state law. (Section 77p(f) explains that a class action is “covered” if it has more than 50 plaintiffs.) Specifically, Section 77p(b) provides: “No covered class action based upon the statutory or common law of any State … may be maintained in any State or Federal court.” Congress added a new provision, Section 77p(c), permitting defendants to remove the now-forbidden state-law class actions to federal court: “Any covered class action brought in any State court, as set forth in subsection (b) of this section, shall be removable to the [local] Federal district court … and shall be subject to subsection (b) of this section.” As the Supreme Court held in an earlier case, the statement that the removed case “shall be subject to subsection (b)” has an obvious purpose: to ensure that the district court promptly dismisses the action.

This case involves what SLUSA describes as “conforming amendments” to the jurisdictional provisions of the 1933 Act (the provisions that permit state courts to hear actions under the 1933 Act and do not permit defendants to remove them). The amendment revises the jurisdiction provision (Section 77v(a)) to add the “except” clause in the following:

The district courts of the United States … shall have jurisdiction …, concurrent with State and Territorial courts, except as provided in section 77p of this title with respect to covered class actions, of all suits in equity and actions at law brought to enforce any liability or duty created by this subchapter.

This case asks what Congress meant when it referred to the “covered class actions” in the “except” clause. The defendant – pointing to the definition of “covered” in Section 77p(f) – said the statute bars state courts from hearing any large class actions, whether they are based on state or federal law. The plaintiffs, on the other hand, argued that the statute bars state courts only from hearing the large state-law class actions banned by Section 77p(b).

Kagan’s answer is that the statute has no effect on the traditional power of states to hear class actions presenting claims under the 1933 Act: “State-court jurisdiction over 1933 Act claims thus continues undisturbed.” The opinion ranges widely through the detailed provisions of the federal securities laws to refute the defendant’s argument “that the except clause exempts all sizable class actions … from [the 1933 Act’s] conferral of jurisdiction on state courts.”

Kagan rests two narrow arguments directly on the text of the except clause. First, she notes, “the except clause points to ‘section 77p’ as a whole – not to paragraph 77p(f)(2),” the clause that defines “covered” class actions. As she sees it, the defendant “wants to cherry pick from the material covered by the statutory cross-reference. But if Congress had intended to refer to the definition in § 77(p)(f)(2) alone, it presumably would have done so—just by adding a letter, a number, and a few parentheticals.” Second, she points out that whatever purpose it might serve, “the definitional paragraph on which [the defendant] relies cannot be read to ‘provide[]’ an ‘except[ion]’ to the rule of concurrent jurisdiction.’” She explains that the defendant’s reading cannot work because “[a] definition does not provide an exception, but instead gives meaning to a term—and Congress well knows the difference between those two functions.”

Kagan turns quickly, though, from arguments about the except clause itself to arguments about the broader context of the securities laws.  For example, she discusses the text of the other conforming amendment in SLUSA, which qualifies the general bar on removal in the 33 Act by adding the phrase “[e]xcept as provided in section 77p(c).” Kagan notes that the removal amendment – “just four sentences down from the except clause central to this case” – “pinpointed a subsection of 77p, rather than citing the entire section for only one of its parts. Still more, that cross-referenced subsection contains an operative provision that could limit a rule, rather than a mere definition of a statutory term.”

Moving to more general policy arguments, Kagan emphasizes the oddity of a reading that “would prevent state courts from deciding any 1933 Act class suits seeking damages for more than 50 plaintiffs,” because that would bar suits even if they did not involve “covered” securities (defined in SLUSA to refer to securities traded on a national exchange). In prior cases, though, the Supreme Court had concluded that SLUSA “‘expresses no concern’ with ‘transactions in uncovered securities’” because they are “‘primarily of state concern,’ and SLUSA ‘maintains state legal authority’ to address them.” Those cases, of course, did not consider the statute at issue here, but Kagan deploys them to discount the idea that Congress intended to “strip state courts of jurisdiction over suits about securities raising no particular national interest. That result is out of line with SLUSA’s overall scope.”

Finally, Kagan emphasizes that the statute designates the except clause as a mere “conforming amendment”:

The change [the defendant] claims th[e except] clause made to state-court jurisdiction is the very opposite of a minor tweak. When Congress passed SLUSA, state courts had for 65 years adjudicated all manner of 1933 Act cases, including class actions. … To think [the defendant] right, we would have to believe that Congress ended that entrenched practice not by any direct means, but instead by way of a conforming amendment to § 77v(a) (linked, in its view, with only a definition).

In sum, borrowing a metaphor from an old opinion of the late Justice Antonin Scalia, she concludes that “Congress does not ‘hide elephants in mouseholes.’”

Having addressed the defendant’s textual argument so forcefully, Kagan can give more cursory treatment to the defendant’s “broad purposive argument” that Congress’ “principal intention in enacting SLUSA” requires “divesting state courts of jurisdiction over all sizable 1933 Act class actions.” For her, that argument “ignores a different way in which SLUSA served [the objectives of the PSLRA].” Pointing to the substantive rules in the PSLRA – which plaintiffs “could – and did – avoid … by bringing their complaints … under state law” – Kagan portrays “SLUSA’s bar on state-law class actions” as a “guarante[e] that the [PSLRA]’s heightened substantive standards would govern all future securities class litigation.”

Moreover, she points out, because the bar on state-law class actions affects claims that would fall under the 1934 Act as well as the 1933 Act, Kagan’s reading of SLUSA moves all large class litigation about the trading of securities into the federal courts (because the federal courts already had exclusive jurisdiction over federal-law claims of that type). Summarizing, she portrays her reading as implementing a compromise under which “all covered securities class actions must proceed under federal law; most (those alleging 1934 Act claims) must proceed in federal court; some (those alleging 1933 Act claims) may proceed in state court.”

Finally, the opinion takes on the defendant’s argument that “the except clause would serve no purpose at all” under Kagan’s reading. Remember, under her reading, Section 77p(b) categorically bars state and federal courts from hearing state-law class actions, and the jurisdiction provision states that the state and federal courts are to have concurrent jurisdiction over claims under the 1933 Act “except as provided in section 77p.” So what is needed to give any weight to the except clause is some type of action under the 1933 Act that can proceed only in federal court – but Kagan’s opinion has just explained that state courts retain their authority over 1933 Act class actions, large and small alike. Kagan acknowledges, “[t]ruth be told,” that the justices are “not sure” what “Congress had … in mind” when it wrote the except clause, but she concludes that:

In the end, the uncertainty surrounding Congress’s reasons for drafting that clause does not matter. … Because … we have no sound basis for giving the except clause a broader reading than its language can bear. … Whatever questions remain as to the except clause’s precise purpose … they do not give us permission to devise a statute (and at that, a transformative one) of our own.

Kagan goes on to reject a rather Solomonic argument presented by the government – though not raised by the facts of the case or supported by either party. The government’s idea – recognizing the difficulty of finding a jurisdictional bar on state-court adjudication of 1933 Act class actions – was to suggest that defendants should be able to remove those cases from state court. That argument, Kagan explains, flies in the face of the language of the removal provision relied on so heavily earlier in the opinion. Kagan notes that the Supreme Court already has held in earlier cases that the “straightforward reading” of the conforming amendment to the removal provision (Section 77p(c)) is that it calls for removal of exactly the cases barred by the adjacent preclusion provision (Section 77p(b)). As anybody who has read so far knows all too well, the preclusion provision bars only large state-law class actions. So the removal provision permits removal only of those same large state-law class actions – and it does so to give the federal court the ability to dismiss them promptly. In sum, Kagan explains that the justices are unwilling to accept that “Congress simply must have wanted 1933 Act class actions to be litigated in federal court. … If further steps are needed they are up to Congress.”

[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 is not affiliated with the firm.]

The post Opinion analysis: Justices affirm continued authority of state courts over securities class actions appeared first on SCOTUSblog.

from http://www.scotusblog.com

Argument preview: Justices to consider yet another twist on tolling statutes of limitation for class-action filers

Argument preview: Justices to consider yet another twist on tolling statutes of limitation for class-action filersAs the melting snow reveals the first buds of spring, the justices turn again to a subject perhaps all too familiar to them – statutes of limitation in class actions. You would think that the Supreme Court had resolved every possible variation on that topic (usually in favor of the defendants, at least in recent […]

The post Argument preview: Justices to consider yet another twist on tolling statutes of limitation for class-action filers appeared first on SCOTUSblog.

Argument preview: Justices to consider yet another twist on tolling statutes of limitation for class-action filers

As the melting snow reveals the first buds of spring, the justices turn again to a subject perhaps all too familiar to them – statutes of limitation in class actions. You would think that the Supreme Court had resolved every possible variation on that topic (usually in favor of the defendants, at least in recent years), but China Agritech v. Resh brings a new variation on the ability of plaintiffs to use equitable tolling to file successive actions.

Much of the litigation in this area involves American Pipe and Construction Co. v. Utah, a precedent from the Burger era, when the Supreme Court was still enamored of the potential for class actions to reduce docket pressures. American Pipe established a rule of “equitable tolling,” a judge-made doctrine that extends the deadlines that otherwise would bar an action as untimely. Specifically, American Pipe permits the individual claimants who did not participate in an unsuccessful class action to file their own separate actions after the failure of the class proceeding. Importantly, American Pipe “tolls” (or suspends) the limitations period on the actions that the individuals could bring for as long as the class action is pending. (If you think you’ve read something on the blog recently about “tolling,” you’re probably remembering the fiercely discordant understandings of that word in the opinions earlier this year in Artis v. District of Columbia.) In this context, American Pipe leaves individual claimants an opportunity to pursue their claims separately after the failure of the joint proceeding, even if their filings come after the deadline established by the relevant statute.

The question in this case is whether individuals who have claims made timely only by American Pipe can band together and file those claims as a subsequent class action. In this case, for example, a group of plaintiffs filed a 2011 class action against China Agritech, alleging violations of the Securities Exchange Act of 1934. In 2012, the district court rejected a motion for class certification, holding that the claims were not suited for joint adjudication. When the individual plaintiffs settled their claims, that case was dismissed in September 2012. A few weeks later, in October 2012, another group of plaintiffs filed a similar class action against China Agritech, raising claims under the Securities Exchange Act related to the same events as the first class action. After the district court rejected a motion for class certification, the second group of plaintiffs voluntarily dismissed their claims in January 2014.

Several months later, in June 2014, yet another group of plaintiffs filed this action, raising claims under the Securities Exchange Act based on the same events as the two previous class actions. Because the filing in this case came more than two years after the events in question, outside the applicable statute of limitations, China Agritech argued that the district court should dismiss it as untimely. The district court ruled for China Agritech, but the U.S. Court of Appeals for the 9th Circuit overturned that ruling, reinstating the class action. Presumably responding to disagreement in the lower courts about the extent to which American Pipe validates so-called “stacked” class actions, the Supreme Court agreed to review the decision.

Because the tolling doctrine is entirely a creation of case law, the arguments are straightforward, turning for the most part on questions about the social value of class actions and the potential for tolling to facilitate them. The plaintiffs offer the simplest path to a decision, emphasizing the undeniable fact that under American Pipe, all of them had a not-yet-expired right to file individual actions on the date that they commenced this case. Building from that point, they argue that the benefits of Federal Rule of Civil Procedure 23, which authorizes class actions, flow directly to them, necessarily giving them the right to take the efficient path of bringing their actions collectively as a class rather than individually in discrete pieces of litigation.

Conversely, the defendant, China Agritech, portrays the case as seeking an extension of American Pipe: The Supreme Court has never approved tolling the limitations period for follow-on class actions, as opposed to follow-on individual actions. On the question of whether an extension would be appropriate, China Agritech makes two principal points. The first is structural: The primacy of legislative authority compels a narrow application of equitable tolling. China Agritech’s second, practical, point is that the sequential burden of repeated class actions (three in this case) unduly undermines the interests of finality that statutes of limitation reflect.

It will be fascinating to observe the justices’ resolution of this problem. On the one hand, the plaintiffs may have the better of the case as a purely doctrinal matter. It is hard to believe that the unanimous court that decided American Pipe would have hesitated to permit the action in this case to proceed. But two dominant strands in the jurisprudence of the Roberts court suggest that several of the justices at least will prefer limiting American Pipe. The first is the obvious concern about class actions that has led to new limits on the types of actions that warrant class adjudication in cases like Wal-Mart v. Dukes and Comcast v. Behrend. If you think those cases aren’t on the front burner for the justices this spring, consider the last section of the blockbuster immigration opinion in Jennings v. Rodriguez, which goes out of its way to recommend that the lower courts on remand consider the implications of Wal-Mart even though none of the briefs of the parties or the amici mention it! The briefs for the defendant in this case play to that concern with repeated references to “abusive” and “lawyer-driven” class actions. However irrelevant it is to the doctrinal question presented, that concern is likely to play a role in a case like this one, which involves three successive class actions based on the same nucleus of operative facts.

The second strand is perhaps not as obvious — the steady retreat from the application of equitable doctrines to temper the effects of statutes of limitation. Here I’m referring not only to last term’s decision in CalPERS v. ANZ Securities, which held that tolling under American Pipe did not apply to statutes of repose, but also to Petrella v. Metro-Goldwyn-Mayer and SCA Hygiene Products v. First Quality Baby Products. The opinions in those cases (by Justices Anthony Kennedy, Ruth Bader Ginsburg and Samuel Alito, respectively) run the ideological gamut, reflecting an apparently growing consensus among the sitting justices that it is Congress’ role to decide when a lawsuit is stale and not the role of the justices to tinker around the edges. It won’t matter so much what a fair reading of American Pipe might suggest to justices skeptical of its central logic.

The oral argument should indicate whether the justices view this case as a narrow exercise in interpreting American Pipe or rather as an opportunity to fashion policies for governing class-based adjudication.

[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 respondents in this case. The author of this post is not affiliated with the firm.]

The post Argument preview: Justices to consider yet another twist on tolling statutes of limitation for class-action filers appeared first on SCOTUSblog.

from http://www.scotusblog.com

Argument preview: Justices to consider tribal immunity from state-court actions to adjudicate title to land

Argument preview: Justices to consider tribal immunity from state-court actions to adjudicate title to landThe justices will get a chance to review first principles of sovereign immunity next week when they hear oral argument in Upper Skagit Indian Tribe v Lundgren. The case presents yet another chapter in the long saga of the Supreme Court’s stance as a mediator between the efforts of the states to control activities within […]

The post Argument preview: Justices to consider tribal immunity from state-court actions to adjudicate title to land appeared first on SCOTUSblog.

Argument preview: Justices to consider tribal immunity from state-court actions to adjudicate title to land

The justices will get a chance to review first principles of sovereign immunity next week when they hear oral argument in Upper Skagit Indian Tribe v Lundgren. The case presents yet another chapter in the long saga of the Supreme Court’s stance as a mediator between the efforts of the states to control activities within their territorial boundaries and the rights of tribes to protect the sovereignty left to them after their assimilation into the national community.

The issue is simple and straightforward – one of those questions that you would expect the Supreme Court to have answered long ago: if a tribe claims to own land in a state, whether it is immune from litigation in the courts of the state challenging its claim of ownership. This case involves the Upper Skagit Indian Tribe, a federally recognized Indian tribe with a small reservation in Washington, north of Seattle near the Canadian border. (In case you are wondering, the Lower Skagit Indians traditionally lived about 50 miles to the south on Whidbey Island in Puget Sound.) In 2013, the tribe purchased a 40-acre parcel of land that adjoins the existing reservation. The Lundgrens own the land just to the south of that parcel. Shortly after the purchase, the tribe discovered a fence, apparently constructed more than 70 years ago, running from east to west all the way across the parcel a few dozen feet north of the south boundary line of the parcel; the fence demarcates a strip of about one acre.

When the tribe refused to sell the strip to the Lundgrens, they filed this suit seeking to “quiet” (that is, adjudicate) the title to the strip. The Lundgrens claim that their continuous and unchallenged exercise of dominion over that strip since the 1940s gave them title to the strip by “adverse possession” long before the date of the tribe’s purchase. Thus, they claim, the tribe never acquired title to the strip. For its part, the tribe contends that it is immune from a suit in the state courts to adjudicate that question; when the state courts rejected that claim, the Supreme Court agreed to consider the tribe’s plea for immunity.

The tribe’s argument for immunity is simple and compelling. The Supreme Court has emphasized on numerous occasions that the status of the tribes as “separate sovereigns pre-existing the Constitution” gives them sovereign immunity from litigation unless the tribe voluntarily waives the immunity or Congress abrogates it. All agree that the tribe has not waived its immunity here, and none of the various congressional enactments involves this type of litigation.

The Lundgrens’ contrary argument has two prongs, one practical and one precedential. The practical one draws an analogy to the sovereign immunity of the states or of foreign nations. All agree that the Washington state courts would have authority to adjudicate if the land in question had been deeded to Canada (a foreign nation) or to Oregon (another state). Why, the Lundgrens ask, should the tribe have greater rights than Canada or Oregon? The solicitor general, though, weighing in on the side of the tribe in an amicus brief, explains that Canada would be subject to that suit because Congress has enacted legislation to that effect – the Foreign Sovereign Immunities Act. For the Oregon hypothetical, the solicitor general explains that states never have immunity in the courts of the other states, pointing to the Supreme Court’s 1979 decision in Nevada v. Hall.

The precedential argument turns on the 1992 decision in County of Yakima v. Confederated Tribes and Bands of Yakima Indian Nation. That case upheld a property tax on land inside the Yakima reservation (also, not coincidentally, located in the state of Washington). The Supreme Court reasoned that the tax was applied only to the land (“in rem”) rather than against the tribe itself (“in personam”). Here, the Lundgrens (like the state courts) can point to the traditional characterization of a quiet-title action as an in rem action against the land, as to which the claimant is more or less of a bystander.  In that context, as with the tax, allowing the action to proceed does not involve the direct adjudication against the tribe that is at the core of concerns about sovereign immunity.

I don’t think the justices will find this case difficult, though it is not that clear to me how they will resolve it. As I mentioned above, the tribe’s argument for immunity is simple and compelling, but the ability of the state to sidestep that argument by portraying this as a suit against the land rather than a suit against the tribe makes a ruling for the Lundgrens easy enough to explain. It also helps the Lundgrens’ side of the case to understand that at the international level, traditions of sovereign immunity have not ordinarily protected nations from this type of litigation: Congress’ decision in the Foreign Sovereign Immunities Act to subject foreign states to this kind of litigation was more a codification of customary norms of international law than an abrogation of a long-standing recognized immunity.

The argument should show us the lens through which the justices view this problem. By this time next week, as likely as not we’ll have a pretty good idea how this one will turn out.

The post Argument preview: Justices to consider tribal immunity from state-court actions to adjudicate title to land appeared first on SCOTUSblog.

from http://www.scotusblog.com

Opinion analysis: Justices approve deferential review of bankruptcy-court determinations on “insider” status

Opinion analysis: Justices approve deferential review of bankruptcy-court determinations on “insider” statusIn all likelihood, this morning’s decision in U.S. Bank N.A. v. Village at Lakeridge will turn out to make the smallest change in the law of any opinion the Supreme Court hands down this year. For one thing, the issue in the case is quite narrow. The dispute involves whether an individual who purchased an […]

The post Opinion analysis: Justices approve deferential review of bankruptcy-court determinations on “insider” status appeared first on SCOTUSblog.

Opinion analysis: Justices approve deferential review of bankruptcy-court determinations on “insider” status

In all likelihood, this morning’s decision in U.S. Bank N.A. v. Village at Lakeridge will turn out to make the smallest change in the law of any opinion the Supreme Court hands down this year. For one thing, the issue in the case is quite narrow. The dispute involves whether an individual who purchased an obligation of a bankrupt debtor is an “insider” of the debtor, a determination that is important in a variety of contexts in the Bankruptcy Code. But even that question – not one of earth-shattering significance even to bankruptcy lawyers – is not directly before the justices. The question for the justices is an even narrower one: what standard of review an appellate court should apply when reviewing a trial court’s determination that a particular individual is (or is not) an insider.

Justice Kagan with opinion in U.S. Bank National Association v. Village at Lakeridge (Art Lien)

A little factual background will clarify the problem. Like most bankrupts, the debtor in this case (respondent Village at Lakeridge) owed money to a variety of entities. One of them was its sole owner MBP Equity Partners (owed about $2.75 million). As the debtor’s sole owner, MBP plainly was an insider of the debtor. In connection with efforts to gain approval of a plan to reorganize the debtor, it was expedient to transfer the debt held by MBP to a third party that was not an insider. To that end, Kathleen Bartlett (an executive of both MBP and the debtor) approached a retired surgeon named Robert Rabkin; Rabkin’s salient characteristics were wealth and a lack of any prior connection to MBP or the bankrupt. Rabkin agreed to buy the debt owed to MBP for $5,000 and proceeded to vote in favor of the proposed plan as a non-insider creditor.

The other large creditor (petitioner U.S. Bank) objected, arguing that the transaction was a sham and pointing to a pre-existing romantic relationship between Rabkin and Bartlett. If Rabkin had been an officer or director of the debtor, Rabkin’s status as an insider would have been undisputed; the statute includes a list of specific relationships that carry insider status. But because Rabkin had no formal relationship with the debtor, the bankruptcy court had to consider whether the particular relationship was close enough to make him an “unenumerated” insider. The bankruptcy court held an evidentiary hearing at which it received testimony from Rabkin and Bartlett, after which it concluded that Rabkin in fact was not an insider, based on its finding that Rabkin and Bartlett negotiated the transaction at arm’s length.

The standard-of-review question before the Supreme Court, then, is whether a court of appeals faced with the result of that hearing – a trial-court ruling that Rabkin and Bartlett negotiated at arm’s length – should review that determination with deference (as it would a factual finding) or without deference (as it would a legal ruling).

The U.S. Court of Appeals for the 9th Circuit treated the determination like a factual finding, and what we learned from Justice Elena Kagan’s opinion for a unanimous court this morning is that the Supreme Court agrees with the court of appeals. The opinion proceeds like the peeling of an onion, with Kagan meticulously working through layers of the controversy as to which the parties agree, with a view to laying bare the remarkably narrow point on which they disagree – a strategy that underscores the remarkably narrow holding that the opinion provides. The opinion structures the process around a series of “three kinds of issues” that confront a bankruptcy judge deciding whether a creditor is an unenumerated insider – “the first purely legal, the next purely factual, and the last a combination of the other two.”

The first of the three is the legal test to determine whether the creditor is an insider. All agree that the selection of a legal test is reviewed without any deference at all – what courts call “de novo” review. And all agree that the case does not present a dispute about what the proper legal test is – because the justices declined to review that question. Accordingly, Kagan simply describes the legal standard that the court of appeals applied, emphasizing that the Supreme Court is offering no opinion as to whether it is a good standard. Under that standard, Rabkin would be an insider if two things were true: His relationship with the debtor was similar to the enumerated statuses; and the transaction was at “less than arm’s length.” SPOILER ALERT: If you read all the way to the end of the post you’ll learn that some of the justices doubt the coherence of that standard.

The second of the three issues for the bankruptcy court to resolve, Kagan explains, calls for findings of “historical” fact – “questions of who did what, when or where, how or why.” Again, all agree that the court of appeals reviews factual findings with deference (under what courts call a “clearly erroneous” standard); no party challenges any of the particular historical facts at issue here.

The third of the three issues requires the bankruptcy court to compare the historical facts about Rabkin, Bartlett, MBP and the debtor (found at step two) to the legal test (selected at step one) and decide whether Rabkin was an insider. Here, the bankruptcy court determined he was not an insider because the transaction did not proceed “at arm’s length,” a so-called “mixed question” of law and fact. And so we finally reach the question that Kagan’s opinion resolves: “What is the nature of the mixed question here and which kind of court (bankruptcy or appellate) is better suited to resolve it”?

Kagan’s resolution of the question reads like a civil-procedure treatise, blandly working through considerations that guide the development of an efficient process of judicial administration, leading toward the conclusion that this particular question is best left in the hands of the court that saw and heard the witnesses. She starts by noting that “[m]ixed questions are not all alike,” that courts often review mixed questions de novo when they “require courts to expound on the law, particularly by amplifying or elaborating on a broad legal standard.” Conversely, courts use the clearly erroneous standard for mixed questions that “immerse courts in case-specific factual issues,” described “emphatically if a tad redundantly” in an opinion authored by the late Justice Antonin Scalia as “multifarious, fleeting, special, narrow facts that utterly resist generalization.” In sum, Kagan explains, “the standard of review for a mixed question all depends on whether answering it entails primarily legal or factual work.”

Choosing between those two characterizations of the issue at hand, Kagan picks the latter. For Kagan, the basic question here was whether “[g]iven all the basic facts found, Rabkin’s purchase of MBP’s claim [was] conducted as if the two were strangers to each other.” Because “[t]hat is about as factual sounding as any mixed question gets,” the court of appeals got it right when it opted for clearly erroneous review:

Just to describe that inquiry is to indicate where it primarily belongs: in the court that has presided over the presentation of evidence, that has heard all the witnesses, and that has both the closest and deepest understanding of the record—i.e., the bankruptcy court.

All nine of the justices joined Kagan’s opinion; the closest thing to a disagreement among the justices was a concurring opinion from Justice Sonia Sotomayor (joined by Justices Anthony Kennedy, Clarence Thomas and Neil Gorsuch) suggesting grave doubts about the coherence of the 9th Circuit’s standard for assessing unenumerated-insider status. Even Sotomayor, though, agrees that resolving the propriety of that standard is not a task that warrants the Supreme Court’s attention.

As I suggested above, the opinion resolutely steers clear of breaking significant ground in bankruptcy law or policy. Still, it well might have more staying power than you might expect – my guess is that the short, succinct and lucid analysis of mixed questions of law and fact will end up being quoted frequently in future contexts far removed from the bankruptcy dispute resolved today.

The post Opinion analysis: Justices approve deferential review of bankruptcy-court determinations on “insider” status appeared first on SCOTUSblog.

from http://www.scotusblog.com