Supreme Court Watch
Social policy issues overshadow the Court’s increasing impact on civil law and claims.
Yet such an impression would be mistaken. In 2012, the court continued to emphasize and consolidate its authority to impact and define civil law in ways both small and large. On a large scale, the court issued a series of decisions reiterating the mandatory enforcement of the Federal Arbitration Act (FAA), despite lower court resistance and hostility to relinquishing judicial authority. On a smaller scale, the court reviewed matters that resulted in eliminating entire causes of action, using language, principles, and analyses that can be expanded upon beyond the confines of a specific case or context.
In summary, through restrictive definition, procedural directive, and emphasis on narrow interpretation in a variety of civil litigation circumstances, the court continues to narrow and limit civil judicial access and remedy. Claims litigators and evaluators will want to review the overall theme of the 2012 term as well as individual cases below.
We Mean It. We Really, Really Mean It
Many defense litigators view arbitration as a cost-effective, efficient, and more predictable means to claims resolution than proceeding through the civil courts, and many contracts, covenants, and pre-litigation agreements contain such arbitration clauses. Yet litigators and claims evaluators have experienced significant frustration as lower courts continue to find escape routes in order to keep an arbitrable claim within the civil system. Perhaps the clearest evidence of this court’s ongoing restriction of judicial access and limitations is seen in the series of decisions regarding litigation under the FAA that block off access to those escape routes.
The foreshadowing of this path can be seen in the November 2011 per curium decision in KPMG LLP v. Cocchi, in which the court reiterated that the role of state and federal courts is to enforce those agreements to arbitrate that fall within the coverage of the FAA, not to find ways to retain those claims for judicial disposition. The 4th District Court of Appeal of the State of Florida had upheld a trial court’s refusal to compel arbitration of claims after determining that at least two of the four claims in the subject complaint were nonarbitrable. The Supreme Court rejected this procedure and summarily directed the Court of Appeal to examine each individual claim in the complaint to determine if any of them are subject to the arbitration agreement, ruling that any such claims must be arbitrated.
In and of itself, this is hardly earth shattering and not even necessarily helpful; the prospect of split claims is not one that claims evaluators embrace. But as the FAA decisions continued through 2012, explicating further what type of claims must be subjected to arbitration and limiting further the type of claims to be retained by the judiciary, this directive grew in benefit.
Thus, on Jan. 10, 2012, the court issued an 8-1 decision in CompuCredit Corporation et al. v. Greenwood that stated with crystal clarity that the “right to sue” is not a right to a judicial forum. The class plaintiffs had brought suit under the Credit Repair Organization Act (CROA), the provisions of which include the right to sue. However, the contract at issue in the case and subject to the CROA contained an arbitration clause. The lower court had held that the CROA “right to sue” was an unwaivable right that took precedence over the contractual agreement. The Supreme Court reversed, holding that the right to sue does not necessarily mean a judicial forum and that contractually required arbitration can satisfy such a right in the absence of more direct and specific language requiring judicial enforcement.
Only a month later, on Feb. 21, 2012, the court issued its third FAA decision in four months, a per curium decision as to three consolidated cases from the West Virginia Supreme Court of Appeals—Marmet Health Care Center, Inc. v. Clayton Brown. The state court held that state public policy overrode any agreement to arbitrate in an admission form when there were subsequent claims of personal injury and wrongful death, going so far as to conclude that “Congress did not intend for the FAA to be, in any way, applicable to personal injury or wrongful-death suits that only collaterally derive from a written agreement … .”
The court made quick and decisive work of the state court’s holding: “[W]hen state law prohibits outright the arbitration of a particular type of claim, the analysis is straightforward: the conflicting rule is displaced by the FAA.” Any attempt to prohibit a particular type of claim is contrary to the terms and coverage of the FAA and will be struck down.
But just in case there was any doubt, the court issued another FAA per curium decision on Nov. 26, 2012—Nitro-Lift Technologies, LLC. v. Howard. The Oklahoma Supreme Court ruled that the noncompetition agreements in two employment contracts were null and void under state law rather than sending the question to arbitration, despite the fact that the contracts contained valid arbitration agreements. The Oklahoma court reasoned that its state statute “addressing the validity of covenants not to compete, must govern the more general statutes favoring arbitration.”
In a swift and certain rebuke, the court ruled that the Oklahoma Supreme Court must abide by the FAA, which is the “supreme law of the land.” It is solely the Supreme Court’s responsibility to say what a statute means, and once the court has spoken, other courts must respect that rule of law. A state law may be specific as compared to a general arbitration statute, but those laws are not of “equal dignity.”
The Supreme Court tackles important employment cases regularly, and this term was no exception. Once again, these cases were analyzed in a variety of ways to reach similar conclusions: “no.” The following pair of employment cases demonstrates different ways in which the court has restricted these specific claims as well as ideas as to how they may be used defensively.
In Christopher v. Smith Kline Beecham Corp., the court provided two points to help determine the vitality of Fair Labor Standards Act (FLSA) classifications. The plaintiff pharmaceutical representatives claimed that they were entitled to overtime pay while the defendant pharmaceutical company asserted that the plaintiffs fell within the statutory exemption of “outside salesman.” Through the course of litigation, the U.S. Department of Labor (DOL) had altered its definition of “outside salesman” more than once. The court found that the DOL interpretation was not entitled to deference in the court’s decision that the plaintiffs were, in fact, exempt outside salesmen. Additionally, the court pointed to the element of retroactive “unfair surprise” to the defendant, which had acted for many years under the belief that its representatives were exempt.
In seeking full analysis of liability on such a claim, analysts will want their counsel to explore the history of agency interpretation for an “unfair surprise” argument as well as the consistency indicated for proper court deference.
As to gender discrimination claims, the March 20, 2012, decision in Coleman v. Court of Appeals of Maryland offers less of a list of evaluation points as an understanding of the lens through which the court views questions of discrimination. The specific question at issue was whether sovereign immunity prevents damage suits against states in violation of the “self-care” provisions of the Family Medical Leave Act (FMLA), whereby employees are entitled to leave for their own care and illness rather than family responsibilities. The plaintiff and numerous amici asserted that the gender-neutral self-care provision was necessary to counter the perception of, and thus unintentional discrimination against, women as the lone family caregivers.
The salient point for evaluators is the court’s focus on traditional discrimination analysis: focusing on open policies or rules that overtly treat genders differently, rather than the more subtle (and some believe more prevalent) social mores and beliefs that simply result in the same harms. This case dealt only with abrogation of sovereign immunity, and the self-care provisions are still good laws as to private employers. However, it is worthwhile to understand that, as commentators, pundits, and social critics examine more nuanced forms of gender discrimination, the current court is not prepared to recognize them.
Several other cases touched on tort issues that should be of interest to evaluators and which further underscore the court’s orientation toward limiting the availability and affordability of tort litigation.
First, in another matter of statutory interpretation, the court eliminated an unknown number of potential claims for violations of the Privacy Act in FAA et al. v. Cooper. The act authorizes private rights of action for violations that result in “actual damages.” Such a predicate is not unusual in many statutes that create private rights of recovery against private entities as well. In this particular context, the court determined that “actual damages” is not specific enough to include mental and emotional injury rather than pecuniary injury. Claims evaluators may want their litigators to further research this question in the matters of statutory causes of action.
Second, the court dealt with that bane of many an aged case, equitable tolling of the applicable statute of limitation, specifically in the context of an alleged violation of the Securities Exchange Act of 1934. In Credit Suisse Securities v. Simmonds, the plaintiff asserted that, under equitable principles, the applicable limitations period was tolled until such time as a particular statutory disclosure was filed. Whether that disclosure was required is necessarily part of the alleged fraud to be litigated, thus, under plaintiffs’ view, creating the possibility of litigation in perpetuity. The court looked upon this possibility with disfavor for a number of reasons, including the effective lifting of the burden of plaintiffs to exercise due diligence in discovering a cause of action. While the decision may not be the equitable tolling salvation many a defendant has been hoping for, the decision provides some interesting dicta which are worthy of review and use.
Finally, following its trend toward narrowing civil action matters, the court asserted its support for a “narrow” reading of taxable costs to the prevailing party in a civil action. Taniguchi v. Kan Pacific Saipan, Ltd. includes compensation for interpreters among the costs that may be awarded to prevailing parties in federal court lawsuits. In this matter, the prevailing party sought to recover costs of translating documents into English. The court determined rendering documents from Japanese to English to be “translating” rather than “interpreting” and, thus, outside the scope of taxable costs to be awarded.
The Shoe that Didn’t Drop
The court granted certiorari and heard argument on a quiet case that had the potential for major outfall—First American Financial Corp. v. Edwards. The case presented the question of limitations to Congress’ Article III power to create statutory rights enforceable through a private right of action. Ultimately, the court determined that cert had been improvidently granted and made no ruling. Is this a punt because the justices simply cannot come to agreement on an appropriate test to impose such limitations on congressional power, or was this just not the right case? Clearly, the issue is one of great interest to the court, and a ruling that limits litigation of statutory violations has the potential for major impact on claims evaluation. For now, we must simply wait.
To date, only a few of the 2012 merits decisions have been announced, and a full plate of decisions awaits oral argument in this second half of the term. Issues on the slate include class actions post-Dukes v. Walmart, damages, and more arbitration questions.
Karen Kalzer is of counsel at Helsell Fetterman, LLP, in Seattle. She holds the CLMP designation and has been a member of CLM since 2010. She can be reached at (206) 689-2125, email@example.com.