8/17/2016
Ties That Bind

Ties That Bind

How an eight-justice Supreme Court ruled on claims and litigation-related issues.

By Karen A. Kalzer

The October Term 2015 (Oct. 5, 2015 - Oct. 2, 2016) for the U.S. Supreme Court may best be remembered for the unexpected loss of Justice Antonin Scalia. The long-term impact of this loss on the court’s jurisprudence is foggy as legislators refuse to act on President Obama’s nomination of Merrick Garland; the court could become more or less conservative depending on the outcome of the 2016 presidential election.

In the short term, the court demonstrated the need for a ninth justice due to the number of 4-4 decisions it made, which requires the decision of the lower court to stand. Notwithstanding, this term provides us with some guidance and rules impacting claims evaluation and litigation.

Second Verse, Same as the First

Claims professionals can rest assured that the court continues to profess its support for the Federal Arbitration Act (FAA), as shown in DIRECTV Inc. v. Imburgia. This issue may sound familiar as once again, a California court tried to find a way to invalidate a contractual arbitration clause (see AT&T Mobility v. Concepcion). Once again, the court refuted that attempt. At argument, Justice Stephen Breyer noted that this case seemed little more than an attempt to evade the lower court’s decision in Concepcion, and in his lead opinion, he was having none of it—despite the fact that he was a dissenter in the Concepcion decision.

Simply put, the California courts found that the entire arbitration agreement in a service contract is unenforceable because the contract itself states that the arbitration clause is unenforceable in its entirety if its class arbitration waiver provision is not valid in the “law of your state.” The California court reasoned that class arbitration waivers are not valid under its own state law regardless of the FAA, so it could find the entire arbitration clause unenforceable. The majority scolded that the class arbitration waivers are permitted under the FAA, which preempts state law, so that California could not rely on its own unenforceability doctrine as a valid “state law.”

Are we reaching the end of the challenges to arbitration clauses? Perhaps not. This decision was reached before Justice Scalia’s demise. With both Justices Ginsberg and Sotomayor dissenting and finding the arbitration clause unenforceable, opponents of such clauses may be willing to bide their time and watch election results to consider the potential for a friendlier court that is more welcoming to a creative argument regarding arbitration clauses.

A Little Different From the First

Many employers and their carriers breathed a sigh of relief when the court issued its 2011 decision in Wal-Mart Stores Inc. v. Dukes. The court reversed a 9th U.S. Circuit Court of Appeals decision that granted class certification to tens of thousands of women alleging widespread discriminatory practices, thus limiting the ability of a purported class to establish CR 23(a) certification based on sample statistics and anecdotes. In short, the court soundly rejected the “trial by formula” theory of class certification.

However, it turns out that this pronouncement did not shut the door on using statistical evidence for establishing a class under the court’s more recent opinion in Tyson Foods Inc. v. Bouaphakeo. The legal claim presented was that workers had been improperly denied overtime for time spent putting on and taking off protective gear. The putative class sought certification based on sampling evidence extrapolated to the class in general. Readers should note that Tyson itself had failed to comply with its statutory duty to keep adequate time records, so the class was denied any ability to use such records.

Relying on Dukes, Tyson sought a flat ban on the use of “representative evidence” to certify the class. In essence, the court found that the “representative evidence” proffered by the plaintiff class in Bouaphakeo constitutes a permissible basis for certifying a class as opposed to the “trial by formula” basis impermissible under Dukes.

The difference seems to rest in the ability to identify a single policy with a more narrow and identifiable impact that could be demonstrated by representative evidence, unlike the Dukes case in which the plaintiffs sought to certify a class by claiming to be injured by a variety of alleged policies, rules, and decisions. Note also that Justice Scalia was the author of that 5-4 opinion in Dukes, but absent from the 6-2 opinion in Bouaphakeo. Had Justice Scalia not been part of the Dukes decision in 2011, the 9th Circuit certification would have stood. With future cases regarding class certification on the horizon, claims professionals should have some caution in evaluating class certification issues as we proceed.

Blows to Class-Action Defendants

It is not uncommon for class defendants to attempt to moot a class action by offering full relief to the lead class-action plaintiff, particularly in consumer and employee class actions. In 2013, the court had avoided the question of such a “pick-off” move for a wage claim, asserting that the issue was not properly presented before the court at that point. (See Genesis HealthCare Corp. v. Smyczyk.) But this term, in Campbell-Ewald Company v. Gomez, the court decided 6-3 that an unaccepted offer of judgment under CR 68 has no force and creates no lasting right or obligation. The court reasoned that when not accepted within the appropriate timeframe, the offer essentially is off the table, which means that adversity between the parties still exists. The class action may continue despite the offer of complete relief to the named plaintiff.

However, claims professionals should know that the pick-off strategy may not be completely dead. The court specifically stated that it was not addressing an alternative theory that asks, “Could a claim be mooted not by making an offer, but rather by depositing funds equaling the full amount of the named plaintiff’s claim into the court and the court then entering judgment for the plaintiff in that amount?” By pointedly reserving the question, the court seems to be leaving room for this alternative strategy.

Expanding Limitations Periods

The court’s examination of employment law continues to provide concern about expanding plaintiffs’ rights to reach a jury. The court reached a 7-1 (no Scalia) decision in Green v. Brennan, an employment law case involving the U.S. Postal Service with potential to influence limitations periods in the private sector. Strictly speaking, the decision in Green applies to federal employees suing under federal law, but its reasoning and decision likely will reach into other employment discrimination cases, as well.

Green was a postal worker who allegedly experienced racial discrimination on the job. He resigned after a specific incident, then alleged constructive discharge in his resulting lawsuit. Regulations required that Green contact the Equal Employment Opportunity Commission (EEOC) within 45 days of the discriminatory incident, which Green had not done, although arguably he had reported the conduct within 45 days of his resignation. The Postal Service sought dismissal on the basis that the contact with the EEOC was too late. The court determined that the clock starts to run on the date of the resignation, that being the date of constructive discharge. Only on the date of resignation is there a complete and present cause of action for constructive discharge.

Interestingly, Justice Thomas, the former head of the EEOC, was the lone dissenter. Justice Thomas stated his belief that a decision to quit a job is not a discriminatory act at all, thus the 45 days would begin to run well before that, back to when the alleged discriminatory acts leading to the resignation occurred.

No Answers on Tribal Jurisdiction

The absence of Justice Scalia is seen clearly in the matter of Dollar General Corp. v. Mississippi Band of Choctaw Indians. This matter, replete with weighty questions regarding the jurisdiction of tribal courts over a non-Indian business entity located on tribal land, was remanded per curiam on a 4-4 vote. The 5th U.S. Circuit Court of Appeals had found that Dollar General, despite no expressed consent to jurisdiction as to the specific matter at issue (alleged sexual misconduct involving a youth in a tribal job training program), had sufficient indicia of consent to invoke tribal jurisdiction under Montana v. United States (including agreements to consent to jurisdiction in the lease documents). That ruling now stands as to the 5th Circuit, but claims professionals have no Supreme Court-level authority upon which to rely in making determinations about contesting tribal jurisdiction in such matters.

An Uncertain Verdict

Claims professionals may breathe a sigh of relief when a favorable verdict is read and the jury is discharged. But hold that thought. In Dietz v. Bouldin, the court held that a federal judge has the inherent authority to recall a jury in a civil case if the jury has rendered a legally impermissible verdict and where there has been no opportunity to prejudice the jurors. Such authority is limited in duration and scope, and should be used sparingly, but the court rejected a flat prohibition in a 6-2 vote.

In Dietz, a Montana jury returned a verdict of zero dollars despite the fact that the parties had stipulated to at least $10,136 in damages. After receiving the zero-dollar verdict, the judge thanked and discharged the jury. Before the jurors had left the courthouse, however, the judge realized his mistake and ordered that the jury be re-empaneled and given clarifying instructions, which then resulted in a $15,000 verdict being returned.

Justices Thomas and Kennedy dissented, arguing for a straight-line rule against re-empaneling a discharged jury. However, the majority cited a number of factors that could be used to determine if the discharge has resulted in prejudice, including the actual length of delay between discharge and recall, the jury’s viewing of any reactions to the verdict, any even innocuous discussions post-verdict, and, of course, whether the jurors had consulted their smartphones after the verdict was read.

We anticipate a variety of rulings in lower courts as these factors play out in real life. When the verdict is favorable but legally impermissible, claims professionals may want to hold off on popping that champagne.

It seems unlikely we will have a full court of nine justices when the Supreme Court reconvenes in October 2016. How this will impact the range of decisions to be considered and issued is unknown. However, the court already has accepted certiorari on several issues relevant to claims litigation, including the equitable defense of laches and more defenses to class-action certification.



Karen A. Kalzer is Of Counsel at Helsell Fetterman LLP, a member of CLM since 2010. She can be reached at (206) 689-2125, kkalzer@helsell.com.

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