Supreme Court’s “Executive Benefits” Bankruptcy Ruling Provides a Practical Solution to a “Stern” Problem

supreme courtGuest Commentary

by Dee Wallander, a 2014 Judge K.K. Legett Fellow at the Washington Legal Foundation and a student at Texas Tech University School of Law.

In an overlooked but practically significant decision from its October 2013 term, Executive Benefits Insurance Agency v. Arkison, the U.S. Supreme Court clarified the procedural impact of its 2011 bankruptcy decision, Stern v. Marshall. In Stern (a case that received more fanfare for its underlying facts—which featured the late model Anna Nicole Smith—than for its legal issues), the Court narrowly held that a bankruptcy court can preside over actions arising from bankruptcy, but cannot hear state-law claims independent of the bankruptcy action. More specifically, Stern held that Article III of the U.S. Constitution bars bankruptcy courts from adjudicating counterclaims to proofs of claims, even though such actions are permissible under 28 U.S.C. § 157 as “core” traditional bankruptcy claims. Despite the Court’s attempt to rule narrowly in Stern, lower courts’ varying interpretations of the decision have created confusion in the bankruptcy system.

Justice Thomas, who wrote the unanimous Executive Benefits opinion, carefully avoided a detailed analysis of Stern by discussing only the narrow statutory question of how federal district and bankruptcy courts should procedurally handle so-called Stern claims. Continue reading

Federal Jurists ♥ Utilitarian Philosopher Jeremy Bentham

BenthamThe U.S. Court of Appeals for the D.C. Circuit, sitting as an en banc panel of 11 judges, sent shock waves through the world of First Amendment enthusiasts on July 29 with its opinion in American Meat Institute v. U.S. Dept. of Agriculture. We’re still digesting this compelled speech ruling, and will be producing a number commentaries over the next several weeks with our thoughts and insights from other experts.

But in the meantime, we couldn’t resist highlighting a wonderful quip in Judge Janice Rogers Brown’s dissent and how it relates to a dissent by Justice Antonin Scalia in a 2013 opinion (which borrowed a concept from 18th Century philosopher, jurist, and utilitarianism proponent Jeremy Bentham).

Upon reading American Meat Institute, an attorney who’s written publications for WLF on commercial speech called to our attention Judge Brown’s creative phrasing, which he thought rivals a quip he recalled Justice Scalia making last year in Maryland v. King.

At the outset of her American Meat Institute dissent, Judge Brown stated, “If, as Jeremy Bentham once quipped, a fanciful argument may be dismissed as ‘nonsense upon stilts,’ the court’s analysis in this case can best be described as delirium on a pogo stick.” Such an intelligently cutting statement is not at all unusual for Judge Brown, whose well-written and cogently reasoned opinions are often peppered with witty historical references. An NPR report about Judge Brown’s U.S. Senate confirmation hearings noted that her opinion writing “reminds [one] very much of Justice Scalia’s writing style.” Continue reading

The Supreme Court’s NOT Top 10: October 2013 Term Cases the Justices Wrongly Passed Over

supreme courtThe Supreme Court press and other court observers have spilled a lot of ink this past month discussing the cases the Supreme Court took and decided during October Term 2013. Relatively little was said about the cases the court chose not to decide—and it passed over some doozies. But as Rush drummer and lyricist Neil Peart put it so eloquently, “If you choose not to decide, you still have made a choice.”

Pro-Business? Journalists like to portray the Roberts Court as particularly business friendly (see, e.g., here , here, and here; but see here), but businesses asked the Court to take plenty of cases this past term that it instead declined. When the Court denies cert in cases of such importance to business at the same time that it has a historically light docket, it can hardly be said to be pro-business. Companies crave legal certainty, so even if the Court took these cases and decided them against business interests, many times simply settling contested questions would be better than leaving them up in the air.

Wanted: More Business Cases. The Court needs to hear more business cases than it currently is, for at least two reasons. First, the unprecedented proliferation of new regulations by this administration has given rise to many more conflicts of the kind that produce Supreme Court cases. Second, to the extent the Clinton-and-Obama-appointee-dominated lower courts are predisposed against business litigants (or, more charitably, deciding close questions consistently against them), businesses will appeal more cases to the Supreme Court when they believe a lower court has denied them justice. Of course the Supreme Court justices take neither of these criteria into consideration when assessing individual cases, but surely these factors matter when assessing whether the Court leans in favor of business in forming its docket. Continue reading

Noel Canning: A Triumph of Judicial Restraint Over Originalism

noelIn its late June decision in NLRB v. Noel Canning, the U.S. Supreme Court unanimously invalidated President Obama’s efforts to make three recess appointments to the National Labor Relations Board.  The Court was sharply divided, however, on the rationale for its decision.  Five justices joined Justice Breyer’s majority opinion, which rejected the most sweeping challenges to the recess appointments and ruled against the Administration on the much narrower ground that the Senate was not, in fact, in recess at the time that the appointments were made.  As a long-time advocate of judicial restraint, I applaud the narrow approach adopted by Justice Breyer.  Justice Scalia’s opinion concurring only in the judgment would have had the effect of preventing future Presidents from making recess appointments except in the rarest of circumstances.  To me, it illustrates the shortcomings of originalism as a means of ensuring judicial restraint.

Article II of the Constitution mandates that the President ordinarily must obtain “the Advice and Consent of the Senate” before appointing an officer of the United States.  The Recess Appointments Clause creates a limited exception to that requirement by authorizing the President, on a temporary basis, “to fill up all Vacancies that may happen during the Recess of the Senate.”  Noel Canning forced the Court to construe the meaning of two phrases contained in the clause.

First, what is meant by “the Recess of the Senate?”  Those challenging the NLRB appointments claimed that the phrase refers only to an inter-session recess, i.e., a break between formal sessions of Congress.  On the other hand, President Obama asserted (as have all recent Presidents) that the phrase also encompasses an intra-session recess, such as a summer recess in the midst of a session.  The NLRB appointments would have been improper under the challengers’ interpretation because the Senate indisputably was not on an inter-session recess at the time of the appointments.

Second, what is the scope of the phrase “Vacancies that may happen?”  The challengers asserted that the phrase refers only to vacancies that first come into existence during a recess.  President Obama (and his predecessors dating back for at least a century) urged a broader reading that would also encompass vacancies that arise prior to a recess but continue to exist during that recess.  The NLRB appointments would have been improper under the challengers’ interpretation because they were made to fill offices that first became vacant before the start of the recess in question.

Continue reading

Supreme Court Observations: Don’t Buy the Spin, EPA Lost the Utility Air Regulatory Group v. EPA Case

peterglaserGuest Commentary

by Peter S. Glaser, Troutman Sanders LLP

*Editor’s note: On June 23, the U.S. Supreme Court issued its opinion in Utility Air Regulatory Group v. Environmental Protection Agency. The author of this commentary represented Washington Legal Foundation pro bono in the case for our amicus briefs at both the petition for certiorari and merits stages.

EPA lost; it didn’t win 

Although you wouldn’t know it from the way EPA and environmental NGOs are portraying the decision.  Industry opposed EPA’s Tailoring Rule with essentially two alternative arguments.  Industry’s maximum position was that EPA could not regulate greenhouse gasses ( GHGs) at all under the Prevention of Significant Deterioration (PSD) or Title V permit programs.  Industry’s alternative position was essentially that if a source is subject to PSD because of its non-GHG emissions (with some caveats), it could be required to do best available control technology (BACT) for both its non-GHG and its GHG emissions.  The Court adopted a variant of industry’s alternative argument.  During briefing, EPA resisted both of industry’s positions.  So it’s a little much for EPA to be claiming victory.

We don’t need to relitigate whether industry should have presented alternative positions or whether industry should have presented the Court with an all-or-nothing position:  either uphold the Tailoring Rule, which we know you don’t want to do, or rule that GHGs cannot be regulated under PSD or Title V at all.  Certainly, a maximum victory would have been preferable to the victory we got, where large facilities triggering PSD for their non-GHG emissions must undertake GHG BACT—a result that is not too far off from at least steps one and two of the Tailoring Rule.  In the end, only two justices (Alito and Thomas) expressed a preference for industry’s maximum position even when presented with the alternative argument.  Whether the other three justices in the majority would have endorsed industry’s maximum position if there had been no alternative position—or whether not presenting an alternative would have resulted in losing the case—is something we will never know. Continue reading

Supreme Court Observations: Alice Corp. v. CLS Bank

LangdonSmith,DanielF-48047-87-bwrGuest Commentary

by Evan H. Langdon and Daniel F. Smith, Adduci, Mastriani & Schaumberg, LLP*

The Supreme Court’s ruling in Alice Corp. v. CLS Bank is notable for what it does not say. Though the Court struck down a software invention directed to mitigating settlement risk through a computer intermediary as patent ineligible, the Court did not rule that software patents or patents that implement software on a computer are per se ineligible. The Court was careful to leave open the door for patent protection of software inventions. In a 9-0 ruling, the Supreme Court affirmed the en banc U.S. Court of Appeals for the Federal Circuit ruling that Alice Corp.’s patent was invalid as directed to ineligible subject matter under 35 U.S.C. § 101. In so doing, the Court reiterated its ruling in Bilski v. Kappos that it is the invention itself that must be patent eligible and whether a claim is directed to software or is tied to a computer does not alter the analysis.

CLS Bank initiated the case by filing for declaratory judgment that the asserted patent was invalid, unenforceable, and not infringed; Alice Corp. counterclaimed for infringement. The parties cross-moved for summary judgment on whether the asserted claims are eligible for patent protection. After the Supreme Court issued Bilski, the District Court granted CLS Bank’s motion finding the claims ineligible for patent protection because they were directed to an abstract idea. On appeal, the Federal Circuit panel reversed the District Court, finding it was not “manifestly evident” that the claims were directed to an abstract idea. A divided en banc Federal Circuit upheld the District Court’s conclusion with a five judge plurality concluding that the claims draw on an abstract idea and the use of a computer added nothing of substance to that idea.

Reliance on Mayo and Gottschalk

In analyzing the claims at issue, the Court relied heavily on its established precedent under 35 U.S.C. § 101 and concluded that Alice Corp.’s claims did not cover patentable subject matter. The Court emphasized the long-standing principle that laws of nature, natural phenomena, and abstract ideas are not patentable because upholding such a patent would effectively grant a monopoly and pre-empt the claimed approach in all fields. Continue reading

In Oklahoma, Class Action Fairness Act Comes Up Short, But Daimler v. Bauman Does The Trick

OklahomaConcerns that businesses were being victimized by abusive lawsuits filed in state courts—in particular, nationwide class actions and mass actions—led Congress to adopt the Class Action Fairness Act (CAFA) in 2005. Congress intended that CAFA ease removal of class and mass actions from state to federal court. The law has had mixed results in that regard, , as plaintiffs’ lawyers have devised a variety of clever ways to evade CAFA and thereby ensure that their nationwide suits can remain in state court. If a recent Oklahoma state-court decision is any indication, however, the plaintiffs’ bar may finally have met its match: the Supreme Court’s January 2014 decision in Daimler AG v. Bauman. That decision imposed strict limitations on a court’s exercise of general jurisdiction over out-of-state defendants. The Oklahoma court invoked Daimler to dismiss hundreds of plaintiffs from a mass action that the U.S. Court of Appeals for the Tenth Circuit already had deemed not removable under CAFA.

The case involved product liability claims by 702 individuals from 26 States, each of whom alleged that she had suffered injuries from pelvic mesh surgical devices manufactured by Ethicon, Inc. (a subsidiary of Johnson & Johnson). CAFA permits removal to federal court of “mass actions” filed by 100 or more plaintiffs raising substantially similar claims. To reduce the risk of removal, the plaintiffs’ lawyers grouped the claims into 11 separate lawsuits, each containing fewer than 100 plaintiffs. Nonetheless, it was obvious that the plaintiffs wanted the cases tried together: they filed the lawsuits in a tiny Oklahoma county with only a single trial judge, thereby ensuring that all 702 claims would be heard by a single judge. They also took steps to prevent removal based on diversity of citizenship: they included at least one New Jersey resident as a plaintiff in each of the 11 lawsuits. Because the defendants have their principal places of business in New Jersey, the inclusion of one New Jersey plaintiff in each case eliminated complete diversity of citizenship and thus precluded removal based on diversity. Continue reading

Supreme Court Observations: Halliburton v. Erica P. John Fund

supreme courtGuest Commentary

by Lyle Roberts, Cooley LLP

*Editor’s note: We are cross-posting this commentary from Mr. Roberts’s blog, The 10b-5 Daily, where it originally appeared. Mr. Roberts authored Washington Legal Foundation’s amicus brief in Halliburton.

The U.S. Supreme Court has issued a decision in the Halliburton v. Erica P. John Fund case holding that defendants can rebut the fraud-on-the-market presumption of reliance at the class certification stage with evidence of a lack of stock price impact. It is a 9-0 decision authored by Chief Justice Roberts, although Justice Thomas (joined by Justices Alito and Scalia) concurred only in the judgment. As discussed in a February 2010 post on this blog, Halliburton has a long history that now includes two Supreme Court decisions on class certification issues. A summary of the earlier Supreme Court decision can be found here.

Under the fraud-on-the-market presumption, reliance by investors on a misrepresentation is presumed if the misrepresentation is material and the company’s shares were traded on an efficient market that would have incorporated the information into the stock price. The fraud-on-the-market presumption is crucial to pursuing a securities fraud case as a class action—without it, the proposed class of investors would have to provide actual proof of its common reliance on the alleged misrepresentation, a daunting task for classes that can include thousands of investors.

The fraud-on-the-market presumption, however, is not part of the federal securities laws. It was judicially created by the Supreme Court in a 1988 decision (Basic v. Levinson). In Halliburton, the Court agreed to revisit that decision, but ultimately decided that there was an insufficient “special justification” for overturning its own precedent. Continue reading

Pennsylvania High Court Joins Judicial Stampede That’s Trampling State Attorneys-General/Plaintiffs’ Bar Alliances

PA scotusOn June 16, the Pennsylvania Supreme Court rejected the Commonwealth’s arguments that Bristol Myers Squibb (BMS) was liable for fraudulently overcharging state health agencies. The state had sued BMS and 13 other pharmaceutical companies and won a $27 million damage award. In the unanimous ruling, the Court dropped a noteworthy footnote in which it questioned Pennsylvania’s reliance on private contingent-fee lawyers to prosecute the case. The decision is just the latest in a string of costly failures by deputized plaintiffs’ lawyers in state actions against drug companies.

The Court’s unanimous Commonwealth v. TAP Pharmaceutical Products decision turned on whether the Pennsylvania agencies suffered any financial loss when taking into account the value of rebates that BMS provided the state for drug purchases. The state claimed that BMS took advantage of the complex “average wholesale price” (AWP) formula to artificially increase its profits from sales to health agencies. BMS denied those charges, and argued that even if the agencies were overcharged, the rebates offset the alleged financial harm. Despite testimony from state officials that they did take rebates into consideration when assessing drug payments, Pennsylvania excluded rebates when formulating its damages claim. The trial court bought the state’s justification for this contradictory stance, as did the Commonwealth Court on appeal.

The justices seemed shocked by the lower courts’ unquestioned acceptance of Pennsylvania’s stance on rebates. Justice Saylor wrote, “[T]his Court is not in need of a body of evidence to apprehend that a rebate operates to reduce the net price of a commodity.” The Supreme Court found it “astonishing” that the Commonwealth Court would allow the state to collect “a billion dollars in rebates relative to social welfare reimbursements while giving no credit to the payers.” Continue reading

Quick Take: Some Possible Impacts of SCOTUS’s POM Wonderful Decision on State-law Food Labeling Class Actions

food-courtIn some of our commentaries on food labeling class actions (collected under the “Food Court” tag), we have lamented how such lawsuits end-run the federal Food Drug and Cosmetic Act’s (FDCA) prohibition on private enforcement. Defendants have argued that the FDCA preempts lawsuits brought under laws such as California’s Sherman Law or Unfair Competition Act. Regrettably, judges have rejected this argument, and have found preemption only if a lawsuit would impose labeling requirements beyond what Food and Drug Administration (FDA) regulations would require.

Plaintiffs and defendants in these suits expressed significant interest when the U.S. Supreme Court agreed in January to review a U.S. Court of Appeals for the Ninth Circuit decision, POM Wonderful LLC v. Coca-Cola Co. There, the Ninth Circuit ruled that the FDCA precluded POM’s federal Lanham Act suit charging that a Minute Maid Blueberry Pomegranate juice’s name and label were misleading. While POM Wonderful involved the interplay between two federal statutes, rather than between federal and state statutes, some opined that a broadly written Supreme Court opinion could either help state-law food labeling suit defendants defeat those claims or add powerful credence to plaintiffs’ arguments that the FDCA does not impede their private enforcement actions.

The High Court decided POM Wonderful on June 12. In an opinion authored by Justice Kennedy, the Court unanimously reversed the Ninth Circuit. While the ruling could inspire more Lanham Act lawsuits between  competitors, it is unlikely to have a major impact on the types of class actions being filed in The Food Court and elsewhere.

Justice Kennedy stated baldly that “this is not a pre-emption case,” and thus “the state-federal balance does not frame the inquiry.” POM Wonderful therefore will not impact arguments that the FDCA preempts state-law class actions challenging food labels. Justice Kennedy also observed “this is a statutory interpretation case,” and focused the Court’s analysis on whether the FDCA and the Lanham Act were complementary or conflicting. Continue reading