Argument analysis: Justices have strong views about removal of class actions

Argument analysis: Justices have strong views about removal of class actionsYesterday morning’s argument in Home Depot U.S.A. v. Jackson was a notable one, as Justice Elena Kagan brought a strong view of the case to the bench and proceeded to dominate the argument. The case involves the removal of litigation from state court to federal court. Under Section 1441 (and predecessor provisions dating back to […]

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Argument analysis: Justices have strong views about removal of class actions

Yesterday morning’s argument in Home Depot U.S.A. v. Jackson was a notable one, as Justice Elena Kagan brought a strong view of the case to the bench and proceeded to dominate the argument.

The case involves the removal of litigation from state court to federal court. Under Section 1441 (and predecessor provisions dating back to the 18th century), “the defendant or the defendants” generally has a right to remove “any civil action brought in a State court of which the [federal] district courts have original jurisdiction.” In 2005, responding to concerns that state courts have been unduly receptive to class actions, Congress adopted the Class Action Fairness Act (often called the CAFA), which included a variety of provisions designed to make it easier for class-action defendants to remove those cases to federal court. One provision, in Section 1332, granted original federal jurisdiction over most class actions seeking a recovery of more than $5 million. Another provision, in Section 1453, provided that “any defendant” can remove a “class action” as defined in Section 1332.

Together, those provisions make it clear that if a plaintiff initiates a large class action in state court, any of the defendants can remove the case to federal court. Home Depot presents an odd twist on that framework. In this case, the initial litigation was between Citibank and respondent George Jackson: Citibank sued Jackson in state court to collect a debt arising out of a purchase Jackson made that was connected to Home Depot. All agree that the Citibank action could not have been brought in (or removed to) federal court. The next step, though, is what makes the case interesting: Jackson responded by asserting both defensive claims against Citibank and a class action against Home Depot, alleging a variety of consumer-protection claims. Citibank then withdrew its claim against Jackson, leaving Home Depot alone in the litigation against Jackson. Home Depot responded by filing a petition seeking to remove the matter to federal court under the CAFA. The lower courts rejected Home Depot’s petition and concluded the case should return to state court.

As I explained in my preview, the parties for the most part briefed the case on the question whether Home Depot qualifies as a “defendant” under Section 1441 and 1453, with Home Depot arguing that as a literal matter it plainly is a defendant and Jackson arguing that the history of Section 1441 shows that the term “defendant” refers only to the party against whom an action initially is filed.

Kagan came to the bench with a somewhat different take on the matter, appearing strongly predisposed to rule against Home Depot because the initial complaint in this case (filed by Citibank) did not institute a “civil action” over which federal courts would “have original jurisdiction.” For her, the key to the case isn’t whether Home Depot is or is not a defendant, it is whether the “civil action” at issue here could have been brought in federal court – and it plainly could not have been. That view squarely collided with the presentation on behalf of Home Depot, represented by William Barnette.

William P. Barnette for petitioner (Art Lien)

Early on Kagan pointed out that Section “1441(a), which is the principal removal statute, says that a civil action, not claims, but a civil action can be removed where the district courts have original jurisdiction. And what I’ve always taken that to mean is that to look for original jurisdiction, you look to the plaintiff’s complaint, the original plaintiff.” She could agree with Barnette that:

[Y]our claim might be under the original jurisdiction of the district courts if … that had started the lawsuit. But that didn’t start the lawsuit. The lawsuit, the civil action, was started by a claim that’s completely non-federal in nature. And you look to the original claim to decide whether the courts have original jurisdiction, don’t you?

Justices Sonia Sotomayor and Stephen Breyer saw the case much the same way. Sotomayor, for example, asked Barnette whether his case would “fall apart if we don’t accept your claim-by-claim analysis? You approach this claim by claim. I’m not quite sure how we can … do that since the statute speaks about a civil action and it talks about removal of an action, not a removal of a claim.”

Breyer emphasized Section 1332, which “says the term ‘class action’ means any civil action … filed under Rule 23 [or analogous state law]. Did [Jackson], the one who sued you, … did he file a civil action?” When Barnette suggested that Jackson had filed such an action, Breyer disagreed forcefully: “I don’t think he did, did he? Where does it say he did? …. What he did was he filed a …. [counter]claim.”

Barnette continued to press his point that Home Depot should be regarded as a defendant, but Breyer kept taking the discussion back to the filing of the complaint against Home Depot by the defendant on the original complaint: “Where does it say that … when a defendant files a class action, … that is an action filed, a civil action, because civil actions are usually filed by plaintiffs.” Indeed, when Barnette persistently redirected the discussion back to his baseline position, the Breyer seemed to lose patience, commenting that he was only asking “a simple question” and asking: “Why are you still not giving direct answers?”

By the end of the discussion, Breyer seemed as settled in his view as Kagan, explaining at one point: “Now I’m over with Justice Kagan. A civil action is an action brought by a plaintiff. And, therefore, since this isn’t a civil action … filed under Rule 23 [or analogous state law], they can’t take advantage of 1453 because they don’t fit within the definition.”

Kagan summarized the discussion near the end of Barnette’s presentation, explaining:

Mr. Barnette, under your theory, every time one party joins another party, we would have a new civil action. … But we don’t. We only have one civil action, and the civil action includes a multitude of claims, or can, between and among a wide range of parties. But it’s only one civil action. …

[Y]ou’re suggesting that we should look at this case as though the original claim never occurred and we should pretend that the claim started with the original defendant. But the case did not start with the original defendant. The civil action started with the original plaintiff, who brought a claim against a defendant who then brought a claim against you.

That is not to say that Paul Bland’s argument on behalf of Jackson was entirely stress-free. Chief Justice John Roberts and Justice Samuel Alito probed closely on the textual support for and policy implications of Bland’s position. When Alito started to press Bland closely, Kagan repeatedly interrupted to explain how she would analyze the problem. At one point, she engaged Alito so directly that he asked Bland whether he “agree[d] with Justice Kagan’s answer to my question.”

F. Paul Bland for respondent (Art Lien)

Bland was reluctant to embrace the position that Kagan had articulated that it is irrelevant whether Home Depot was or was not a defendant because Jackson had not filed a “civil action” against Home Depot. Bland spent much of his argument trying to resist comments by Alito and Justice Brett Kavanaugh suggesting that Home Depot must be accepted as a defendant. Alito, for example, commented at one point that if “we look at the text, we have a reference to the defendant or the defendants. So Home Depot would qualify there, would it not?” When Bland suggested that the traditional understanding of Section 1441 meant that Home Depot was not a defendant, Alito was wholly unpersuaded: “You’re reading things into it. … [I]n the ordinary sense of the term, are they not defendants? …. They are some kind of defendants.”

Alito also seemed to think affirming the decision in this case would fly in the face of Congress’ intent in adopting the CAFA, as he asked Bland rhetorically:

[I]s there any good reason why a claim like this … should not be removable to federal court? … If a claim like this is filed originally in … state court, it can be removed, but if it comes into the state court in this strange sort of back-door way, then it has to stay in state court. You really think that that’s a possible decision Congress would make?

At the end of the day, it is not at all clear from the argument how the court will resolve this one. We should find out by the end of June.

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

Editor’s Note: Analysis based on transcript of oral argument.

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Opinion analysis: Justices uphold arbitration exemption for transportation workers in rare victory for arbitration opponents

Opinion analysis: Justices uphold arbitration exemption for transportation workers in rare victory for arbitration opponentsArbitration month at the Supreme Court continued this morning with the unanimous decision in New Prime Inc. v. Oliveira – following by a single week the unanimous decision in Henry Schein v. Archer & White Sales. New Prime, though, is anything but business as usual: Justice Neil Gorsuch’s opinion for a unanimous court rejects a […]

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Opinion analysis: Justices uphold arbitration exemption for transportation workers in rare victory for arbitration opponents

Arbitration month at the Supreme Court continued this morning with the unanimous decision in New Prime Inc. v. Oliveira – following by a single week the unanimous decision in Henry Schein v. Archer & White Sales. New Prime, though, is anything but business as usual: Justice Neil Gorsuch’s opinion for a unanimous court rejects a claim for arbitration for the first time in a string of more than a dozen of the Supreme Court’s cases stretching back more than a decade. Indeed, I doubt the court has rejected such a claim in any previous decision since the turn of the millennium.

Justice Gorsuch with opinion in New Prime Inc. v. Oliveira, and Justice Thomas with opinion in Stokeling v. U.S.

New Prime involves an exception to the rule in the Federal Arbitration Act that obligates courts to enforce arbitration agreements that involve interstate commerce. Specifically, under the “transportation” exclusion in Section 1 of the act, “nothing” in the act applies to “contracts of employment of … seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” In this case, all agree that the truck drivers (including respondent Dominic Oliveira) driving trucks for petitioner New Prime are “workers engaged in foreign or interstate commerce.”

The question for the court is whether the lower courts should have sent this dispute to arbitration even though the drivers might work for New Prime as independent contractors rather than as employees. New Prime argued in the lower courts that the exception for “contracts of employment” applies only when the workers are employees; because New Prime endeavors to structure its relations with its drivers so that they are independent contractors rather than employees, New Prime argued that the act should apply notwithstanding the transportation exclusion.

The first question Gorsuch addresses is whether the lower courts should have been considering the exclusion at all. New Prime argues that because its contracts delegate questions of arbitrability to the arbitrator, the lower courts should have allowed the arbitrator to consider the application of the exception in the first instance. That argument should be familiar to readers of this blog – it was the central topic of the decision last week in Henry Schein. As I explained in my discussion of that opinion, the Henry Schein court unanimously reaffirmed the rule that courts must enforce a contract that delegates “gateway” questions about arbitrability to the arbitrator; the specific holding in Henry Schein was that a court must send a case to an arbitrator even if the claim for arbitration strikes the court as wholly groundless.

In this case, however, the Supreme Court is calling for judicial assessment of the objection to arbitration. Gorsuch explains that the provisions of the act obligating courts to stay litigation and compel arbitration (Sections 3 and 4) apply only if the dispute is one to which the act applies under Sections 1 and 2. Because the act “warns that ‘nothing’ in the Act ‘shall apply’ to ‘contracts of employment’” in the transportation sector, “a court should decide for itself whether § 1’s ‘contracts of employment’ exclusion applies before ordering arbitration.” For Gorsuch, “a court must first know whether the contract itself falls within or beyond the boundaries of §§ 1 and 2” before it can “invoke its statutory powers under §§ 3 and 4.” In sum, even if the contract is “crystal clear and require[s] arbitration of every question under the sun, … that does not necessarily mean the Act authorizes a court to stay litigation and send the parties to an arbitral forum.”

It may be, as Gorsuch remarks, that “[n]othing in” that analysis “should come as a surprise.” We would expect, though, perhaps a few words explaining the distinction between this case and the unanimous decision in Henry Schein a week earlier. It’s not difficult to articulate a distinction. The most obvious difference is that the arbitrability dispute in Henry Schein involved interpretation of the contractual agreement, while the arbitrability dispute in New Prime involves the court’s statutory authority. Indeed, Chief Justice John Roberts suggested such a distinction in the oral argument in New Prime (apparently referring back to the Henry Schein argument that the court had heard a few weeks before it heard New Prime).

But what is to explain the absence from the New Prime opinion of any reference to Henry Schein? It might have something to do with the timing of the two opinions. Because New Prime was argued earlier (in October rather than November), it would be natural for Gorsuch’s opinion to omit any reference to Henry Schein – Gorsuch well might have circulated his opinion in New Prime before Justice Brett Kavanaugh circulated his opinion in Henry Schein. But New Prime has a brief concurring opinion from Justice Ruth Bader Ginsburg (more on that below); if the drafting of that concurrence delayed the release of New Prime beyond the release of Henry Schein it is easy to see that Gorsuch might not have thought it worth the effort to go back and amend his opinion to discuss the now earlier-decided Henry Schein matter. The natural person to call for a discussion would have been Kavanaugh (the author of Henry Schein), but he did not participate in New Prime.

In any event, having determined that the scope of the transportation exclusion is a question for the court, Gorsuch turned to that question. For him, the “key to the case” (foreshadowed by his trenchant comments on that subject at the oral argument) is that the statutory reference to “contracts of employment” must bear the meaning that phrase had “at the time Congress enacted the statute” (quoting his own opinion last term in Wisconsin Central Ltd. v. United States). “After all,” he explains, “if judges could freely invest old statutory terms with new meanings, we would risk amending legislation outside the ‘single, finely wrought and exhaustively considered, procedure’ the Constitution commands” (quoting Immigration and Naturalization Service v. Chadha).

Gorsuch notes New Prime’s central argument – that modern usage limits the term “employee” to the traditional “relationship between master and servant” that is antithetical to the independent-contractor relationship New Prime has tried to craft with Oliveira and the other drivers. Gorsuch rejects that argument, though, based on his conclusion that “at the time of the Act’s adoption in 1925 … most people … would have understood § 1 to exclude not only agreements between employers and employees but also agreements that require independent contractors to perform work.” Among other things, he cites dictionaries indicating that “employment” was not “then a term of art,” but rather “more or less … a synonym for ‘work,’” routinely applied “whether or not the common law criteria for a master-servant relationship happened to be satisfied.” In the same way, detailed footnotes support the view that the same usage pervaded the Supreme “Court’s early 20th-century cases …, [m]any state court cases, … a variety of federal statutes, … [a]nd state statutes too.”

Gorsuch suggests that New Prime’s contrary arguments largely rest on an effort “to shift the debate from the term ‘contracts of employment’ to the word ‘employee.’” Acknowledging an “extended etymological debate” between the parties on exactly when “the words ‘employee’ and ‘independent contractor’ … assumed [their modern] distinct meanings,” as well as “the common root and … intertwined history” of “‘employee’ and ‘employment,’” Gorsuch emphasizes that “[t]he only question in this case concerns the meaning of the term ‘contracts of employment’ in 1925,” a topic he already has examined.

Finally, Gorsuch notes that New Prime, in his view “[u]nable to squeeze more from the statute’s text, … is left to appeal to its policy.” Not surprisingly, he does not deny the vigor of the court’s embrace of a “liberal federal policy favoring arbitration agreements.” In this case, though, the text seems clear enough to persuade all of the justices to reject the claim for arbitration. With a characteristic rhetorical flourish, Gorsuch comments that “[i]f courts felt free to pave over bumpy statutory texts in the name of more expeditiously advancing a policy goal, we would risk failing to take account of legislative compromises essential to a law’s passage.”

Notably, although Ginsburg joined Gorsuch’s entire opinion, she offered a brief concurring opinion summarizing circumstances in which “Congress … may design legislation to govern changing times and circumstances,” suggesting that a rigorous adherence to the meaning of the text at the time of its enactment often might thwart rather than execute congressional intent.

* * *

Past cases linked to in this post:

INS v. Chadha, 462 U.S. 919 (1983)
Wis. Cent. Ltd. v. United States, 138 S. Ct. 2067 (2018)

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Argument analysis: Quiescent bench dubious about broad fee awards in copyright cases

Argument analysis: Quiescent bench dubious about broad fee awards in copyright casesThe week’s second argument, Rimini Street v. Oracle USA, has the justices considering the scope of fees available to a prevailing party in litigation under the federal Copyright Act. Sitting for the second week without Justice Ruth Bader Ginsburg, the bench was remarkably quiescent. To the extent the justices evinced any strong interest in the […]

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Argument analysis: Quiescent bench dubious about broad fee awards in copyright cases

The week’s second argument, Rimini Street v. Oracle USA, has the justices considering the scope of fees available to a prevailing party in litigation under the federal Copyright Act. Sitting for the second week without Justice Ruth Bader Ginsburg, the bench was remarkably quiescent. To the extent the justices evinced any strong interest in the case, they seemed skeptical about allowing broad fee awards.

The case calls for a reading of Section 505 of the Copyright Act, which defines the recovery of a prevailing party under the act. That provision states: “In any civil action under [the Copyright Act], the court in its discretion may allow the recovery of full costs by or against any party…. [T]he court may also award a reasonable attorney’s fee to the prevailing party as part of the costs.” The problems in understanding that language arise from a general provision in 28 U.S.C. § 1920, which defines a relatively narrow set of “taxable costs” customarily awarded to the prevailing party in federal court. The question for the court here is whether the “costs” described in Section 505 are the narrow set of costs that are taxable under Section 1920 or instead a broader set of costs that would come closer to compensating a party for all of its litigation costs. In this case, for example, the lower court relied on Section 505 to award more than $12 million of nontaxable costs.

The backdrop of the case also involves the so-called “American rule,” under which even a prevailing party ordinarily bears the bulk of its litigation costs, including attorney’s fees. The universal practice in federal courts is to limit any broader recovery, beyond the narrow costs taxable under Section 1920, to cases in which Congress explicitly has authorized a broader award. The issue in this case is whether the language in Section 505 authorizing an award of “full” costs is enough to justify courts in going beyond that standard to award nontaxable costs.

The questioning was remarkably desultory, particularly during the presentation of Mark Perry, who appeared on behalf of the defendant, Rimini, to seek reversal of the broad award of costs. For the most part, the justices blandly asked counsel to respond to the arguments of the other side. Only two of the justices spoke with sufficient incisiveness to suggest a strong perspective on the case.

On the textual question, Justice Elena Kagan was particularly unreceptive to the argument of Paul Clement, representing Oracle and thus seeking to defend the broad award of costs. After Clement agreed with Kagan that the sole basis for the argument was the insertion of the word “full” as a modifier of costs, she retorted, “So we decided a case earlier this year on the basis of the legal proposition that adjectives modify nouns.” Presumably she was referring to the opinion of Chief Justice John Roberts for a unanimous Court in Weyerhauser Co. v US Fish & Wildlife Service. Interpreting a reference to “critical habitat” in that case, Roberts explained:

According to the ordinary understanding of how adjectives work, “critical habitat” must also be “habitat.” Adjectives modify nouns—they pick out a subset of a category that possesses a certain quality. It follows that “critical habitat” is the subset of “habitat” that is “critical” to the conservation of an endangered species.

Applied here, Kagan suggested, that analysis should “kill you…. In other words, ‘full’ can only modify costs as defined in 1920.” Continuing to press the point, she explained:

You said, if [the statute] just said costs, we would all understand that it was the term of art [referring to costs taxable under Section 1920]. And then you say that by adding the word “full,” … you want to use the word “full” to suggest that it’s not the 1920 costs we’re talking about at all. It’s some different kind of costs.

Justice Sonia Sotomayor was similarly unreceptive, though for more practical reasons. For her, the problem with Clement’s reading of Section 505 was that it was “so open-ended that I don’t have a way for judges to exercise their discretion in a reasonable manner.” Ridiculing the likely consequences, she suggested that courts commonly would authorize awards to cover the costs of “the babysitter for the witness who has to come to court” or even “experts like a body language reader.”

Although it probably sheds little light on the likely outcome, I should mention what strikes me as the most interesting part of the argument, an interchange between Perry and Sotomayor early in the argument. Perry was trying to make the point that Clement’s argument would fly in the face of traditional practice in copyright cases, which until this recent dispute arose had not involved an award of nontaxable costs. At one point, he asserted that “[f]rom 1831 to 1976, there are 858 copyright cases awarding costs. Not one case has ever awarded any cost not on a statutory schedule under either state law or federal law.” Sotomayor called him on the assertion, apparently not set out in Perry’s brief: “Could you point me to where in your brief or an amici accounted for those 800 cases?” Perry, clearly armed for the point, explained that “[w]e [had] pointed out in the reply brief that my friends on the other side and all of their amici had not cited a single case on their point. And to confirm that we were right, I went through and had my team read every single one of them.”

I have little reason to think the justices will regard Rimini Street as one of their weightier matters. My strong impression from the argument is that we should expect a consensus limiting the permissible costs to the traditional “taxed” costs set out in Section 1920, and that we should expect an early opinion explaining that result.

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Opinion analysis: Kavanaugh’s first opinion rejects vague exception limiting enforcement of arbitration agreements

Opinion analysis: Kavanaugh’s first opinion rejects vague exception limiting enforcement of arbitration agreementsThe justices’ first opinion day of 2019 brought the first opinion from Justice Brett Kavanaugh, writing for a unanimous court in Henry Schein Inc. v. Archer & White Sales Inc. The case is the most recent in a decade-long string of opinions under the Federal Arbitration Act, in which the Supreme Court consistently has reversed […]

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Opinion analysis: Kavanaugh’s first opinion rejects vague exception limiting enforcement of arbitration agreements

The justices’ first opinion day of 2019 brought the first opinion from Justice Brett Kavanaugh, writing for a unanimous court in Henry Schein Inc. v. Archer & White Sales Inc. The case is the most recent in a decade-long string of opinions under the Federal Arbitration Act, in which the Supreme Court consistently has reversed lower-court decisions refusing to enforce arbitration agreements. Many of those cases have been decided by narrow 5-4 majorities, which has raised the possibility that the replacement of Justice Anthony Kennedy by Kavanaugh might lead to some softening of the court’s position in those cases. As it turns out, Henry Schein will shed no light on that broader question, because even the justices more skeptical about arbitration saw no merit in the arguments against arbitration here.

The topic in this case is the arbitrability of “gateway” questions: not the underlying dispute (was the employee properly fired; did the seller breach a contract), but the question whether that underlying dispute is arbitrable. At bottom, the question is whether a court or an arbitrator decides whether an arbitration agreement governs a particular dispute. The Supreme Court repeatedly has held that the Federal Arbitration Act allows the parties to a contract to decide whether an arbitration agreement will extend to those gateway questions, explaining that courts must compel arbitration of the gateway questions whenever the agreement includes “clear and unmistakable evidence” that the parties delegated the decision of those questions to the arbitrator.

Several lower courts, though, have adopted an exception to that rule, reasoning that it would be a waste of time to send a case to an arbitrator if the claim of arbitrability is “wholly groundless.” In this case, for example, the contract called for arbitration of any “dispute arising under or related to” the contract “except for actions seeking injunctive relief.” Because the complaint sought injunctive relief in addition to damages, the courts below reasoned that the defendant’s request for arbitration was wholly groundless and thus they refused to compel arbitration.

None of the justices could accept that treatment. As you would expect for a first opinion, Kavanaugh’s opinion was succinct and methodical. He started from the Supreme Court’s repeated decisions holding that the “agreement to arbitrate a gateway issue is simply an additional … agreement the party seeking arbitration asks the federal court to enforce, and the [Federal Arbitration Act] operates on this additional arbitration agreement just as it does on any other.” He then pointed out the court’s frequent rejection of the idea that a court should use a claim of frivolity as a basis for rejecting enforcement of an arbitration agreement, quoting earlier decisions explaining that courts have “no business weighing the merits of the grievance,” because the “agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious.”

Echoing the discussion at oral argument (summarized here), Kavanaugh scoffed at the notion that an exception vitiating “wholly groundless” requests for arbitration “would save time and money systemically.” Among other things, he suggested, such an “exception would inevitably spark collateral litigation (with briefing, argument, and opinion writing) over whether a seemingly unmeritorious argument for arbitration is wholly groundless, as opposed to groundless. We see no reason to create such a time-consuming sideshow.” Perhaps it did not escape the notice of the justices that the litigation over arbitrability in this case has consumed seven years: Arbitration might have been a waste of time, but would it have wasted seven years?

As suggested above, I don’t think this opinion tells us much about whether the post-Kennedy Supreme Court will soften its support for arbitration. As the argument made clear, none of the justices saw any merit in a process calling for collateral litigation over the gateway question of arbitrability. We will have to wait for decisions in the term’s other arbitration cases (Lamps Plus v. Varela and New Prime Inc v. Oliveira) to know more about the broader question.

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Argument preview: Justices to consider removal of class actions to federal court

Argument preview: Justices to consider removal of class actions to federal courtNext Wednesday the justices will hear their second major class-action case of the year. Following on Frank v. Gaos (argued in November), Home Depot USA v. Jackson considers the ability of defendants to remove class actions to federal court. Unlike Frank v. Gaos, which considered a largely untethered question about the propriety of class-action settlements […]

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Argument preview: Justices to consider removal of class actions to federal court

Next Wednesday the justices will hear their second major class-action case of the year. Following on Frank v. Gaos (argued in November), Home Depot USA v. Jackson considers the ability of defendants to remove class actions to federal court. Unlike Frank v. Gaos, which considered a largely untethered question about the propriety of class-action settlements that do not provide direct compensation to class members, Home Depot USA presents two crisp questions of statutory interpretation.

A little background about the interplay between state and federal courts is necessary to understand the dispute. We start with the practice of “removal,” which allows a defendant in a case pending in state court to “remove” the case to federal court, at least if the case could have been brought in federal court in the first place. Section 1441 of the Judicial Code limits the right to remove to “the defendant or the defendants.” Because removal is intended to protect litigants from the risk that a state forum might be unfavorable to some federally supported interest, the plaintiff (who selected the state forum in the first place) ordinarily has no right to change its mind about its preference for a state forum and remove the case to federal court.

Often, after a plaintiff initiates litigation by filing a complaint against a defendant, the defendant will extend the litigation by filing a new claim. For example, the defendant might file a counterclaim that alleges a new cause of action against the plaintiff and other entities not originally part of the litigation. In the removal context, those counterclaims raise an obvious question: Is the “defendant” on a counterclaim the kind of defendant that can remove the litigation to federal court? When the counterclaim defendant is the original plaintiff, we know from a 1941 Supreme Court decision (Shamrock Oil v. Sheets) that the plaintiff’s status as a counterclaim defendant does not make it a “defendant” that can remove the case to federal court under Section 1441.

The question here is what happens when the original defendant’s counterclaim brings new parties in to the litigation. In this case, for example, Citibank sued George Jackson in North Carolina state court to collect on a debt related to a purchase connected to Home Depot. Jackson responded by asserting both defensive claims against Citibank and a class action against Home Depot and another party, alleging a variety of consumer-protection claims. Citibank promptly withdrew its claim without prejudice, but Home Depot remains in the case and would like to remove it to federal court.

The lower courts consistently have held under Shamrock Oil that a counterclaim defendant has no right to remove a case to federal court, limiting the removal right to the original named defendant. The premise of those cases is that it unduly interferes with the plaintiff’s choice of a state forum for a party not originally named by the plaintiff to remove the entire litigation to federal court. Home Depot argued in the lower federal courts that the result should be different in this case because of the Class Action Fairness Act of 2005. Reflecting a sentiment that state courts are unduly favorable to class actions, that statute protects class-action defendants by facilitating the removal of large class actions to federal court. Specifically, that statute adds a provision (Section 1453) that allows “any defendant” to remove most class actions that seek damages of more than $5 million. When the lower courts concluded that Section 1453 does not permit removal of the class action against Home Depot, Home Depot sought review in the Supreme Court. Stirring the pot a bit, the Supreme Court order granting review also asked the parties to address the question whether the lower courts correctly have extended Shamrock Oil to third-party counterclaim defendants.

Home Depot’s argument is simple. It is plainly a defendant by any ordinary meaning of the term: It has filed no claims against anybody; it is in court solely because Jackson asserted a class action against it. On the Shamrock Oil question, Home Depot argues that the lower courts have erred in extending Shamrock Oil to bar removal by parties, like Home Depot, that have made no choice to be in state court. On Section 1453, Home Depot maintains that it has no role in the litigation except as a defendant. More generally, because the explicit purpose of CAFA is to ensure federal-court adjudication of class actions like this one, remanding the action to state court undermines that statute. Home Depot ends by noting that the original claim (the one that could not have been filed in federal court) has been withdrawn; the sole dispute remaining before the court is the one to which Section 1453 speaks directly, which is “precisely the type of class action Congress intended to be removable under CAFA.”

Jackson rests heavily on a long tradition under the general removal statute (Section 1441), which uniformly has barred removal by “derivative defendants” like Home Depot. The lower courts always have interpreted Section 1441 to permit removal only when the original complaint was one that could have been filed in federal court. Because the original complaint here (filed against Jackson by Citibank) presented non-diverse causes of action under state law, that complaint could not have been filed in federal court; the traditional rule, accordingly, would not permit removal of the case by a derivative defendant such as Home Depot. As for Section 1453, Jackson argues that Congress drafted the Class Action Fairness Act against the backdrop of practice under Section 1441, and that the court therefore should read the reference to “defendants” in Section 1453 to incorporate the long-standing understanding of that term in Section 1441.

Essentially, Home Depot’s central argument emphasizes the strong protection for defendants in the Class Action Fairness Act, and Jackson’s central argument emphasizes the protection afforded to plaintiffs by the tradition under Section 1441 that limits removal to original defendants. We will know more after oral argument about how the justices are inclined to weigh those competing considerations.

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

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Argument preview: Justices to consider limits on awards of “costs” to prevailing parties in copyright cases

Argument preview: Justices to consider limits on awards of “costs” to prevailing parties in copyright casesRimini Street v Oracle USA, set for argument on January 14, is another one of those routine statutory interpretation cases that reach the Supreme Court’s docket not because they present deep intellectual issues, but rather because of the justices’ continuing obligation to ensure uniformity in the decisions of the lower courts. The question in this […]

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Argument preview: Justices to consider limits on awards of “costs” to prevailing parties in copyright cases

Rimini Street v Oracle USA, set for argument on January 14, is another one of those routine statutory interpretation cases that reach the Supreme Court’s docket not because they present deep intellectual issues, but rather because of the justices’ continuing obligation to ensure uniformity in the decisions of the lower courts. The question in this case is the nature of the “costs” that a federal district court can award the prevailing party in litigation under the federal Copyright Act.

The case raises no overarching questions of copyright theory. It is, rather, a pure case of statutory interpretation, involving the overlap between two statutory provisions. The first is the general provision in 28 U.S.C. § 1920, which defines a relatively narrow set of “taxable costs” customarily awarded to the prevailing party in federal court. Those costs exclude many (probably most) of the costs of litigation, as they include neither attorney’s fees nor a variety of other miscellaneous expenditures such as the costs of expert witnesses or (at issue here) much of the costs of the discovery process. Together with the presumption against awarding attorney’s fees to the prevailing party in litigation (the so-called American rule), Section 1920 establishes a general norm in federal civil litigation that even a prevailing party commonly bears a substantial share of the costs of litigation.

The second provision is Section 505 of the Copyright Act, which defines the recovery of a prevailing party under the act. That provision states: “In any civil action under [the Copyright Act], the court in its discretion may allow the recovery of full costs by or against any party …. [T]he court may also award a reasonable attorney’s fee to the prevailing party as part of the costs.” The issue in this case is whether the discretion to award “full costs” in the first sentence of Section 505 authorizes a full recovery of taxable costs (the ones listed in Section 1920) or a full recovery of all litigation costs (including those that are not included in the definition of taxable costs under Section 1920).

The facts of this case offer a simple example of how those provisions work on the ground. The federal Copyright Act protects various aspects of the software programs that Oracle markets. Oracle sued Rimini claiming that Rimini infringed those copyrights in the course of providing support to customers that were using Oracle’s software. After contentious litigation, Oracle prevailed; a jury awarded more than $35 million in damages. To that award, the district court added about $28 million in attorney’s fees (unquestionably proper under the last sentence of Section 505), $5 million in conventional costs (the kind customarily available under Section 1920, and thus plainly appropriate under the first sentence of Section 505), and $13 million in nontaxable costs. The question for the justices is whether Oracle is entitled to recover that $13 million or whether that is a cost of litigation that Oracle has to bear even though it prevailed in the lawsuit.

The arguments on the merits are simple and direct. Rimini argues that “costs” is a term of art in federal statutes that refers directly to the taxable costs defined in Section 1920. On that reading, the authorization in Section 505 for a court to award “full” costs is designed to rebut any implication that the court can award only some subset of costs. Tracing the reference to “full costs” to 17th-century English statutes, Rimini points to old statutes that did not permit an award of the total amount of taxable costs unless the plaintiff gained a substantial recovery in the litigation. In any event, Rimini argues, the Supreme Court’s cases have established that only an explicit reference to broader recoveries can permit a federal court to award costs beyond the taxable costs defined by Section 1920. The loose language of Section 505, Rimini argues, is not sufficiently explicit to justify an award beyond the normal bounds of taxable costs.

Oracle, by contrast, reads “full costs” as a unitary phrase, authorizing the court to award not only the limited taxable costs defined in Section 1920, but also all the costs that the prevailing party incurred in the litigation. Oracle rebuts Rimini’s contention that the single word “costs” is a term of art that refers only to the taxable costs defined in Section 1920. For example, the second sentence of Section 505 itself calls for an award of attorney’s fees “as part of the costs” described in the first sentence. Indeed, when Congress calls for an award of attorney’s fees (something that plainly cannot occur without an explicit statutory command), it commonly does so by authorizing the fee award “as part of the costs” or by authorizing an award of costs “including attorney’s fees.” Oracle also argues at some length that Rimini’s reading of the history is incorrect, contending that Congress and state legislatures commonly referred to “single” costs rather than “full” costs when they intended to call for an award of the entire amount of the taxable costs.

The justices are likely to approach this case as a textbook problem of statutory interpretation, so I would expect the oral argument to air the competing perspectives of the justices with some clarity. What I’ll be looking for is the extent to which the justices regard the key indicator as “costs” standing alone – an arguable reference to Section 1920 – as opposed to “full costs,” which would give the phrase a less specialist reading.

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Justices call for more briefing in dispute about Oklahoma prosecutions of Native Americans

Justices call for more briefing in dispute about Oklahoma prosecutions of Native AmericansNow that the justices have had a few days to consider last week’s oral argument in Carpenter v Murphy, it appears that they are looking for creative ways to resolve the dispute. As explained in my earlier posts, the case as presented to the Supreme Court asked whether the reservation previously afforded the Creek Nation […]

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Justices call for more briefing in dispute about Oklahoma prosecutions of Native Americans

Now that the justices have had a few days to consider last week’s oral argument in Carpenter v Murphy, it appears that they are looking for creative ways to resolve the dispute. As explained in my earlier posts, the case as presented to the Supreme Court asked whether the reservation previously afforded the Creek Nation remained in place after Oklahoma’s statehood more than a century ago. The premise of the briefing was that if that reservation remained in place, then it would constitute “Indian country” within which Oklahoma would have no jurisdiction to prosecute criminal offenses committed by members of the tribe, such as capital-murder defendant Patrick Murphy.

This afternoon the justices asked for briefing from the parties, the United States as amicus curiae supporting Oklahoma, and the Muscogee (Creek) Nation, as amicus curiae supporting Murphy, on two questions that seem to suggest a search for a new way to resolve the controversy. The first is whether there is any statute that might authorize Oklahoma prosecutions “irrespective of the area’s reservation status.” If Oklahoma has such authority, then the disruption from recognizing the reservations as still in existence would be much less.

The second question is whether there “are circumstances” in which land that still “qualifies as an Indian reservation” would “not meet the definition of Indian country as set forth in 18 U.S.C. § 1151(a).” The point of that question, presumably, is that the statute that arguably divests Oklahoma of authority is the Major Crimes Act, which applies only to offenses committed by an “Indian” at a location “within the Indian country.” If those reservations are not “Indian country,” then the Major Crimes Act would not divest Oklahoma of the authority it has exercised through the years to prosecute offenses committed by Native Americans.

The supplemental briefs are to be filed simultaneously on December 28, with reply briefs to be filed by January 11, 2019, which should leave the court plenty of time to resolve the case before the end of the term next June.

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Justices call for more briefing in dispute about Oklahoma prosecutions of Native Americans

Justices call for more briefing in dispute about Oklahoma prosecutions of Native AmericansNow that the justices have had a few days to consider last week’s oral argument in Carpenter v Murphy, it appears that they are looking for creative ways to resolve the dispute. As explained in my earlier posts, the case as presented to the Supreme Court asked whether the reservation previously afforded the Creek Nation […]

The post Justices call for more briefing in dispute about Oklahoma prosecutions of Native Americans appeared first on SCOTUSblog.

Justices call for more briefing in dispute about Oklahoma prosecutions of Native Americans

Now that the justices have had a few days to consider last week’s oral argument in Carpenter v Murphy, it appears that they are looking for creative ways to resolve the dispute. As explained in my earlier posts, the case as presented to the Supreme Court asked whether the reservation previously afforded the Creek Nation remained in place after Oklahoma’s statehood more than a century ago. The premise of the briefing was that if that reservation remained in place, then it would constitute “Indian country” within which Oklahoma would have no jurisdiction to prosecute criminal offenses committed by members of the tribe, such as capital-murder defendant Patrick Murphy.

This afternoon the justices asked for briefing from the parties, the United States as amicus curiae supporting Oklahoma, and the Muscogee (Creek) Nation, as amicus curiae supporting Murphy, on two questions that seem to suggest a search for a new way to resolve the controversy. The first is whether there is any statute that might authorize Oklahoma prosecutions “irrespective of the area’s reservation status.” If Oklahoma has such authority, then the disruption from recognizing the reservations as still in existence would be much less.

The second question is whether there “are circumstances” in which land that still “qualifies as an Indian reservation” would “not meet the definition of Indian country as set forth in 18 U.S.C. § 1151(a).” The point of that question, presumably, is that the statute that arguably divests Oklahoma of authority is the Major Crimes Act, which applies only to offenses committed by an “Indian” at a location “within the Indian country.” If those reservations are not “Indian country,” then the Major Crimes Act would not divest Oklahoma of the authority it has exercised through the years to prosecute offenses committed by Native Americans.

The supplemental briefs are to be filed simultaneously on December 28, with reply briefs to be filed by January 11, 2019, which should leave the court plenty of time to resolve the case before the end of the term next June.

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Argument analysis: Justices debate revised language in patent-priority statute

Argument analysis: Justices debate revised language in patent-priority statuteThis morning’s argument in Helsinn v. Teva Pharmaceuticals brought the justices their first patent case of the year. As expected, this argument included little of the technical concerns that so often dominate patent cases.  This case comes to the court as a simple and confined question of statutory language, and the argument suggested that the […]

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Argument analysis: Justices debate revised language in patent-priority statute

This morning’s argument in Helsinn v. Teva Pharmaceuticals brought the justices their first patent case of the year. As expected, this argument included little of the technical concerns that so often dominate patent cases.  This case comes to the court as a simple and confined question of statutory language, and the argument suggested that the court will resolve it from that perspective.

The dispute involves provisions of the Patent Act that “bar” an inventor from obtaining a patent if the inventor publicizes the invention or exploits it commercially before filing an application with the patent office. In one form or another, those provisions have been a part of American patent law since the early 19th century, and for much of that time the provisions have barred a patent if the invention previously was “on sale,” at least if the sale occurred more than a year before the patent application. Congress revised the relevant provisions in 2011 when it adopted the Leahy-Smith America Invents Act (universally known as the AIA).

As revised by the AIA, the current statute bars a patent if “the claimed invention was … in public use, on sale, or otherwise available to the public before” the patent filing. The central issue in the case is what to make of the phrase that refers to inventions “otherwise available to the public,” a phrase added by the AIA. Helsinn (which holds the pharmaceutical patent under attack) argues that the phrase shows that all of the listed bars apply only if the activity makes the invention available to the public. Thus, Helsinnn argues, although it made some private sales of the pharmaceutical before it sought a patent, those should not bar the patent because they were not the kind of “public” sales that amount to putting the invention “on sale.” Teva (a generic pharmaceutical company selling a product that would infringe the Helsinn patent) argues that the addition of language covering activities that make an item “otherwise available to the public” simply created an entirely separate bar that sheds no light on the meaning of the on-sale bar.  For Teva, Helsinn’s sale of the pharmaceutical, whether public or private, is enough to bring the on-sale bar into play.

Most of the justices who spoke at any length seemed to take the view that it is long-settled that an inventor triggers the on-sale bar by any type of sale, whether public or private, and that Congress’ slight revision of the statute in 2011 could hardly be thought sufficient to overturn that understanding. Justice Brett Kavanaugh, for example, suggested that “it’s pretty hard to say something that has been sold was not on sale” and seemed persuaded that “it[’s] always [been] the case that if you offer it to even one person or to a small group of people, it’s on sale.” He was particularly pointed in his dismissal of the suggestion by Kannon Shanmugam (representing Helsinn) that Congress intended in the AIA to “clarify” that an invention is “on sale” only if it is “available to the public”: “If that was a clarification, it was a terrible clarification because there were a lot of efforts, as you well know, to actually change the ‘on sale’ language, and those all failed.”

Kavanaugh responded even more vigorously when the legislative history came up in the presentation of Malcolm Stewart (representing the U.S solicitor general, in support of the patentholder Helsinn):

You mentioned the legislative history, but isn’t this a classic example of trying to snatch victory from defeat in some of the legislative statements? … [T]here was this law before, as Justice [Elena] Kagan mentions, a huge effort to change it, lots of proposals to change it. They all fail.

Kagan’s analysis seemed a bit different, though probably leading to the same conclusion, as she seemed to grant the point that the language as written was at least ambiguous as to whether a private sale like Helsinn’s should be enough to bar a patent.  For her, though, like Kavanaugh, it was not credible that the revision of the statute in 2011 was specific enough to change the settled meaning.

Justice Sonia Sotomayor seemed especially settled on the traditional conception of the on-sale bar.  Thus, in an interchange with Stewart, she suggested that the historical understanding of the on-sale bar posed a real problem for the patentholder:

[T]o be frank with you, I’ve looked at the history cited in the briefs, I looked at the cases, I don’t find it anywhere. You’re sort of giving “on sale to the public” its meaning, but those are not the words used by Congress. … Congress just said “on sale.” … And when you have a historical term that has a history, as a matter of course, we look at that history.

Justice Stephen Breyer seemed to have a similar view, as he commented that he read the court’s existing cases to suggest that “the purpose of this on-sale rule … is to prevent people from benefiting from their invention prior to and beyond the 20 years that they’re allowed,” and that an inventor who decides to “exploit his discovery competitively after it is ready for patenting” forfeits his right to a patent.

The strongest view on the other side of the matter came from Justice Samuel Alito, who found the “meaning of the new statutory language” to be “fairly plain.”  Thus, questioning William Jay (representing the generic manufacturer Teva), he bluntly commented: “I find it very difficult to get over the idea that this means that all of the things that went before are public. … That’s what ‘otherwise’ means.”

I don’t see this as a case in which the argument clearly presages the result. Several of the justices had little to say, and among those who spoke it seems pretty clear that there are at least tentative views on both sides of the question. Having said that, the balance of the justices’ comments, which largely favored Teva, suggests that the most likely outcome will be an affirmance of the U.S. Court of Appeals for the Federal Circuit, holding that an inventor puts an invention “on sale,” and thus loses a right to patent it, upon any sale, public or private.

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Argument analysis: Justices appear divided in debate over anti-fraud securities rules

Argument analysis: Justices appear divided in debate over anti-fraud securities rulesThe dividing lines were apparent at Monday’s argument in Lorenzo v Securities and Exchange Commission, as several justices seemed to think it self-evident that the conduct of petitioner Francis Lorenzo amounted to a fraudulent scheme under the federal securities laws, while at least one justice, Neil Gorsuch, appeared ready to rule for Lorenzo. To understand […]

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Argument analysis: Justices appear divided in debate over anti-fraud securities rules

The dividing lines were apparent at Monday’s argument in Lorenzo v Securities and Exchange Commission, as several justices seemed to think it self-evident that the conduct of petitioner Francis Lorenzo amounted to a fraudulent scheme under the federal securities laws, while at least one justice, Neil Gorsuch, appeared ready to rule for Lorenzo.

To understand the debate, some background is useful. This case follows from the Supreme Court’s 2011 decision in Janus Capital v First Derivative Traders, which held that only the “maker” of a statement is liable for its falsity. Lorenzo distributed a set of emails to his clients urging them to invest in securities of a particular firm. All agree that the emails included false statements about the firm, but that Lorenzo cannot be charged with “making” those false statements because Lorenzo’s supervisor crafted the text of the statements (which Lorenzo pasted into the emails that he sent). Faced with Janus, the SEC charged Lorenzo with engaging in a fraudulent scheme rather than making a false statement.

Lorenzo’s central argument is that permitting the SEC to charge him tolerates a plain evasion of Janus, leaving Janus a dead letter. For several justices, the biggest problem with that argument is that the Janus court relied on the statutory text that condemns the “making” of a false statement; the Janus court reasoned that a person does not “make” a statement when parroting words produced by another. Because the rules and statutes under which the SEC charged Lorenzo do not include any references to the “making” of statements, the textual analysis of Janus says little about those provisions.

As for those provisions, several of the justices (including Justices Stephen Breyer, Samuel Alito, Elena Kagan and Sonia Sotomayor) suggested that the conduct in which Lorenzo engaged falls squarely within the relevant language. Alito, for example, repeatedly pressed Robert Heim, who represented Lorenzo, to suggest any reason why the alleged conduct did not “fall squarely within the language” of the statute. In the same vein, Kagan asked early on with apparent incredulity if Heim seriously thought that his client had “not engaged in an act which operates as a fraud.” Sotomayor went even further, suggesting that she thought that Lorenzo’s conduct was so plainly condemnable that Heim’s admissions regarding Lorenzo’s state of mind seemed to her to “give away your case.”

The only strongly contrary comments came from Gorsuch, who pressed the view that the only “actus reus” (the classic Latin phrase for wrongful conduct) in the SEC’s charges was the transmission of emails. For Gorsuch, the appeals court’s ruling that Lorenzo did not “make” the false statements contained in the emails meant that he could not be held responsible for deceiving the investors. It was plain, however, that other justices did not share his views. Kagan, for example, stepped in to emphasize that the relevant conduct was the transmission of the false statement, which could not “cause the deception unless it gets to those readers.”

An exchange between Kagan and Heim encapsulated the argument. Kagan explained that Heim’s view made sense only if the justices thought of the various provisions of the anti-fraud statutes as entirely separate and “mutually exclusive” — so that conduct involving misstatements could be sanctioned, if at all, only under the provisions directed specifically at misstatements. Echoing the analysis of the U.S. solicitor general, Kagan suggested that it made more sense to regard the provisions as overlapping, in what she described as a “belt-and-suspenders approach where … we’re going to find every possible way to say this thing in order to make sure that fraudulent acts are covered.”

Alito’s skepticism is a bad sign for Lorenzo, because all four of the dissenters from Janus (Breyer, Justice Ruth Bader Ginsburg, Kagan and Sotomayor) remain on the bench, and none of them showed any inclination to extend Janus to this case. If the government picks up an additional vote from Alito, then Lorenzo will have no chance to prevail. My guess is that we can expect a short and straightforward opinion affirming Lorenzo’s liability.

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