Supreme Court’s “Omnicare” Decision Follows Middle Path Advocated by Lane Powell and WLF

greeneddavisjGuest Commentary

By Douglas W. Greene and Claire Loebs Davis, Shareholders with Lane Powell PC in Seattle, Washington. They co-authored WLF’s amicus brief pro bono in Omnicare.

In the opinion issued on March 24 in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund (“Omnicare”), the Supreme Court rejected the two extremes advocated by the parties regarding how the truth or falsity of statements of opinion should be considered under the securities laws. Instead, it adopted the middle path advocated in the amicus brief filed by Lane Powell on behalf of Washington Legal Foundation (“WLF”).

In doing so, the Court also laid out a blueprint for examining claims of falsity under the securities laws, which we believe will do for falsity analysis what Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308 (2007), did for scienter analysis. Hence, Omnicare will help defense counsel defeat claims that opinions were false or misleading in § 11 cases, as well as in cases brought under § 10(b) of the Securities Exchange Act. Continue reading

The Supreme Court Should Not Abandon “Stare Decisis” in “Kimble v. Marvel Enterprises” Case Given Reliance Interest

At issue in Kimble v. Marvel Enterprises

At issue in Kimble v. Marvel Enterprises

The Supreme Court’s 1964 decision in Brulotte v. Thys Co. has been among the Court’s more heavily criticized patent law decisions. A number of academics and appeals court judges have complained that Brulotte, which establishes a rule governing construction of patent licensing agreements, is based on a misunderstanding of the economic considerations underlying such agreements. Perhaps in response to that criticism, the Court granted certiorari in Kimble v. Marvel Enterprises, Inc. to consider a single question: should it overturn the 50-year-old Brulotte rule? The Court will hear oral arguments in Kimble on March 31.

The correct answer is a resounding “no.” At oral argument, the record will show that parties negotiating patent licensing agreements have relied on Brulotte for half a century when drafting terms governing royalty payments. Overturning Brulotte would be a patent troll’s dream. It could expose licensees to unforeseen royalty demands based on long-forgotten license agreements that they reasonably assumed—in reliance on the Brulotte rule—imposed no additional payment obligations after the expiration of the licensed patent. As with patent trolls, the potential liability in some cases may be so high that in terrorem settlement is the licensee’s only reasonable choice. In other cases, the nuisance value of the claim may be smaller than the cost to litigate. Either way, a shortsighted decision in Kimble could lead to decades of costly and vexatious litigation to no one’s benefit. Continue reading

Supreme Court Observations: Interpreting “Perez v. Mortgage Bankers Association”

supreme courtIn its 1997 decision, Paralyzed Veterans of Am. v. Arena, the U.S. Court of Appeals for the D.C. Circuit created an important bulwark against federal administrative agency evasion of notice-and-comment rulemaking. Under the “Paralyzed Veterans” doctrine, an agency had to comply with formal (and time-consuming) administrative procedures even when it claimed to be doing nothing more than interpreting existing rules, if the agency was de facto reversing its existing regulations. The Supreme Court’s decision last week in Perez v. Mortgage Bankers Assoc. unanimously set aside Paralyzed Veterans. The Court held that the Administrative Procedure Act (APA) does not require a regulatory agency to adhere to notice-and-comment rulemaking when it issues a rule interpreting one of its formal regulations.

Largely ignoring the D.C. Circuit’s rationale, the Supreme Court said that it would presume that the 2010 rule was an “interpretive” rule because (supposedly) “the parties litigated this suit on [that] understanding.” The Court said that the text of the APA does not mandate notice-and-comment rulemaking for interpretive rules and that the D.C. Circuit thus erred in adopting an extra-statutory mandate. But by starting with the premise that the 2010 rule was an interpretive rule, the Supreme Court created a straw-man argument never espoused by the D.C. Circuit, which stated explicitly that its decision to strike down the 2010 rule was based on its reading of the text of the relevant APA provisions.

Moreover, the Respondent repeatedly argued before the Supreme Court that the 2010 rule was not an interpretive rule. The Supreme Court’s only response was to note that the Solicitor General premised his certiorari petition on a claim that the D.C. Circuit had mandated notice-and-comment rulemaking for an interpretive rule, and that the Respondent waived the point by failing to dispute the Solicitor General’s claim in its brief opposing the cert petition. But while that response might justify a ruling against the Respondent in this case, it provides no justification for condemning all non-parties subject to the DOL rule, let alone all applications of the Paralyzed Veterans doctrine, which (as the D.C. Circuit decision below made clear) does not assume that challenged rules are interpretive but rather provides a standard for differentiating between substantive and interpretive rules.

The decision nonetheless provides a glimmer of hope to those wishing to challenge rules adopted without adherence to notice-and-comment procedures. The Court’s ruling assumed (incorrectly, it turns out) that the Paralyzed Veterans doctrine was based on the premise that the challenged re-interpretation of existing regulation qualified as an “interpretive rule” under the APA. Thus, Perez arguably imposes no impediment on a litigant who asserts that the challenged rule is “substantive” in nature, not “interpretive.”

Substantive Rules v. Interpretive Rules. The APA requires federal agencies, before they adopt “substantive” rules (a/k/a “legislative” rules), to provide notice of the proposed rule and a meaningful opportunity for members of the public to comment on the proposal. Exempted from the APA’s notice-and-comment requirement are mere “interpretive” rules. Agencies seek to avoid notice-and-comment requirements by deeming as many rule changes as possible interpretive changes; the requirements are burdensome and can delay agency action for months or even years. Yet, despite nearly 70 years of APA litigation, the scope of exempt “interpretive” rules has never been fully pinned down.

The Paralyzed Veterans doctrine was the D.C. Circuit’s principal contribution to that debate. The appeals court held that when an agency issues a definitive interpretation of one of its formal regulations and later seeks to issue a new interpretation that squarely conflicts with the prior interpretation, the new interpretation is a “substantive” rule and thus may not be adopted unless the agency first goes through notice-and-comment rulemaking. The court sensibly reasoned that when an agency seeks to repudiate its initial interpretation, it has in effect amended its formal regulation, and that an agency should not be permitted to “reinterpret” a regulation as a means of evading the formal rulemaking requirements that (everyone agrees) apply whenever an agency amends its regulations. Continue reading

WLF Web Seminar Explores New General Personal Jurisdiction Arguments under SCOTUS’s “Bauman” Ruling

Litigating away from “Home”: General Personal Jurisdiction One Year after the Supreme Court’s Daimler AG v. Bauman Decision

Mr. Beck utilized a PowerPoint slide presentation. The archive of the program, which includes a viewable version of the slides, is available at WLF’s website here.  If you would prefer to watch the video above, a PDF of the slides are available here.

Related materials on Daimler AG v. Bauman and its application in civil litigation:

Linda Greenhouse’s Blatant Effort to Invoke “Greenhouse Effect” in Affordable Care Act Case Fails

NYTMark S. Chenoweth, WLF’s General Counsel, contributed to this post

Linda Greenhouse is at it again. The New York Times Supreme Court reporter-turned-opinion writer is deeply troubled by the possibility that the Supreme Court may actually construe the Affordable Care Act precisely as Congress wrote it. And she is up to her old tricks of trying to influence the justices by suggesting that they “will have a great deal of explaining to do—not to me, but to history” if they strike down the proposed IRS rule at issue in the case.

Now that the Supreme Court has agreed to decide the proper scope of tax credits available under the law, Ms. Greenhouse laments, “[n]ot only the Affordable Care Act but the court itself is in peril as a result.” Chief Justice Roberts, by her lights, “saved the day” last time around. “The fate of the statute hung in the balance then and hangs in the balance today,” she continues, but “… [t]his time, so does the honor of the Supreme Court.”

And yet King v. Burwell is precisely the sort of case that the Supreme Court is supposed to decide. Not only does it raise an issue of exceptional importance—whether the IRS is permitted to appropriate billions of dollars in tax credits each year absent an express authorization from Congress to do so—but the Fourth and D.C. Circuits have issued conflicting decisions on that question, and only the Supreme Court can resolve such a conflict.

Although the text of the ACA couldn’t be any clearer that only those taxpayers who purchase health insurance on exchanges “established by a State” are entitled to subsidies in the form of a tax credit, Ms. Greenhouse argues that the law’s “context” points in the opposite direction. But even if the law is ambiguous, Ms. Greenhouse strenuously avoids addressing the overriding reason for any ambiguity—the ACA was the sloppiest piece of legislative draftsmanship in a generation or more. Continue reading

Will the High Court Permit Backdoor Regulation of Natural Gas Industry Via State-Law Antitrust Suits?

oneokEarlier this month, the Supreme Court heard oral argument in ONEOK v. Learjet, an important case that hinges on the scope of the Federal Energy Regulatory Commission’s (FERC) field preemption under the Natural Gas Act (NGA). I attended to hear the argument in person because Washington Legal Foundation has been quite active in the case.

While it is undisputed that the NGA preempts state-law claims directed at conduct affecting the wholesale rates for natural gas, the Court must now consider whether such claims are preempted when the same alleged conduct affects both wholesale and retail rates. Reversing the district court, the Ninth Circuit rejected ONEOK’s preemption argument on the basis that the state-law claims brought by the plaintiff-purchasers arose from retail gas transactions.

On behalf of ONEOK, Neal Katyal argued that even though the alleged conduct at issue in this case affected both retail and wholesale rates, it still counts as a practice that affects wholesale rates for preemption purposes. The only relevant question, then, is whether plaintiffs’ state-law claims are directed at conduct in the field that the NGA occupies—and they are. The United States, representing FERC’s regulatory interests, filed an amicus brief and argued on the merits in support of ONEOK’s position.

From his questions, Justice Breyer seemed to appreciate the difficulty in setting a strict boundary between wholesale and retail sales in cases where the retail and wholesale prices are both affected by the same conduct. He could prove to be the decisive vote in the case.

Plaintiffs’ attorney Jeffrey Fisher insisted that FERC has no power over antitrust claims tied to retail prices, which the NGA excepts from federal regulation. The State of Kansas as amicus curiae, joined by 20 other states, argued in support of Plaintiffs, with attorney Steven McAllister emphasizing the states’ strong interest in policing antitrust violations.

Justice Kagan seemed fully prepared to side with the Plaintiffs, explaining that so long as no conflict exists between state antitrust liability and regulation by FERC, “I don’t really see a reason … why you would exclude the state entirely, even if nothing the state was doing was conflicting with federal regulation or federal policy.”

In all likelihood, the Supreme Court will issue its decision within the next few months. As WLF’s amicus brief argued, the stakes for the natural gas industry are high. The NGA promotes uniformity, not random regulation by jury verdicts in 50 states. Permitting private plaintiffs to pursue state-law antitrust remedies that second-guess FERC—including in states where antitrust remedies dwarf those available under federal law—would create industry-wide chaos and an unnecessary drag on investment in a vibrant and growing sector of the economy.

The Court agreed to grant review in the case following WLF’s brief in support of the petition for certiorari—and WLF’s separate online analysis of the Solicitor General’s unusual advice to the Supreme Court about (not) granting review in the case. WLF’s brief on the merits provides the Court with additional policy reasons to overrule the Ninth Circuit.

Also published by Forbes.com at WLF’s contributor page

Supreme Court Observations: The Fair Housing Act and “Disparate Impact” Claims

supreme courtThe Supreme Court on Wednesday will hear arguments in Texas Department of Housing and Community Affairs v. The Inclusive Communities Project, a case that will determine whether the federal Fair Housing Act (FHA) applies to conduct that, although not intentionally discriminatory, has an allegedly disparate impact on protected groups. Assertions that disparate-impact claims are cognizable under the FHA are difficult to square with the statutory language, which bars housing discrimination “because of” race, color, religion, sex, familial status, or national origin. The phrase “because of” suggests volition by the defendant, not merely that the effects of his actions were felt more strongly by members of protected groups. Proponents of disparate-impact liability frequently respond that whatever the scope of the FHA when first adopted in 1968, Congress later expanded the statute by acquiescing to an unbroken line of court and Executive Branch decisions that had interpreted the FHA as encompassing disparate-impact claims.

But an examination of the federal appeals court decisions cited by the Solicitor General and other disparate-impact claims proponents indicates that lower courts’ endorsement of such claims has been anything but uniform. Thus, putting to one side whether it is ever appropriate to discern the meaning of a federal statute based on evidence of Congress’s inaction in the wake of decisions construing the statute, the case for using that method of statutory interpretation in this instance is particularly weak.

In making the case for congressional acquiescence, the Solicitor General’s brief focuses on 1988, when Congress amended several FHA provisions but did not amend the “because of” language set forth in 42 U.S.C.§ 3604(a). According to the Solicitor General, “Between the enactment of the FHA in 1968 and its amendment in 1988, all nine of the courts of appeals to consider the issue concluded that the Act authorizes disparate impact claims.” Based on that history, he asserts, the 1988 amendments “confirm” that Congress sanctioned disparate-impact claims under the FHA. Continue reading