The U.S. Supreme Court will rule on numerous significant cases in 2014, involving such issues as presidential power, affirmative action, campaign contributions, environmental regulations, intellectual property, commercial arbitration, parens patriae suits and implementation of the Affordable Care Act. The Court also will reconsider the so-called “fraud-on-the-market” theory in a potentially landmark securities law case.
Presidential Recess Appointment Power and Other Constitutional Issues
The Supreme Court will consider a rare dispute at the heart of the separation of powers between the executive and legislative branches of the federal government. National Labor Relations Board v. Noel Canning poses several questions about the scope of the president’s so-called recess appointment power — that is, the power to temporarily fill vacancies in senior executive branch positions without Senate approval when the Senate is in recess. The Court will examine whether the president may exercise this power only during a recess that occurs between sessions of the Senate, or also during a recess that occurs within a session of the Senate. The justices also will consider whether the recess appointment power may be exercised while the Senate is convened for brief pro forma sessions in which no business is conducted. Finally, it will examine whether the president may use this power to fill any vacancies that exist during a recess (whenever the vacancy first arose) or, alternatively, only vacancies that first arose during that recess. Should the Court substantially diminish the president’s recess appointment power, it may enable the Senate, by failing to act on presidential nominees, to stymie the activity of certain regulatory agencies — for example, the National Labor Relations Board, which requires a quorum of three members. Regardless of how the Court rules, the case will be another important development regarding the president’s power to appoint federal officials — on the heels of the Senate’s November 2013 decision to restrict filibusters against executive branch nominees.
The Court will address a range of other important constitutional questions during its current term.
Affirmative Action. In Schuette v. Coalition to Defend Affirmative Action, the justices will consider whether a state violates the U.S. Constitution’s equal protection clause when it bans affirmative action in public university admissions. The case involves an amendment to Michigan’s constitution, approved by the state’s voters in 2006, prohibiting race-conscious admission policies in public universities. In the past, the business community has actively participated in the Court’s affirmative action cases. Only a year ago, when the Court considered a challenge to race-conscious admissions at the University of Texas, a group of 57 leading American companies filed an amicus curiae brief supporting the university. Past cases, however, typically focused on the circumstances in which a state violates the equal protection clause by adopting an affirmative action program; by contrast, Schuette asks whether a state’s ban on those programs may be unconstitutional.
Federal Government Powers. The Court will return to a question it has addressed several times in the past decade — the constitutionality of efforts to control the influence of money in elections. This time, in McCutcheon v. Federal Election Commission, it will scrutinize statutory limits on the aggregate amounts that an individual may contribute to all federal candidates, political parties and other political committees in a two-year election cycle. The Court also will consider whether a federal statute implementing a treaty may exceed Congress’ other enumerated powers. The case raising this question, Bond v. United States, involves the federal government’s use of legislation implementing the Chemical Weapons Convention to prosecute what arguably amounts to ordinary poisoning — a Pennsylvania woman’s attempt to place in contact with toxic chemicals an individual who had an affair with her husband.
Health Care. Finally, the Court will examine yet another controversy arising from the implementation of the Affordable Care Act. In 2014, it will consider legal challenges to regulations that require mandatory coverage of contraceptives in employer-provided health insurance plans. Some for-profit corporations have alleged that these regulations violate their constitutional right to free exercise of religion, as well as the Religious Freedom Restoration Act. The Court will hear two cases raising these issues: Sebelius v. Hobby Lobby Stores, Inc. and Conestoga Wood Specialties Corp. v. Sebelius.
The Court’s regulatory docket includes two sets of important cases challenging rules promulgated by the Environmental Protection Agency. These cases do not appear to raise canonical, or even generally applicable, questions of administrative law. Rather, they are notable because both of the rules in question have significant environmental policy implications.
First, the Court will examine in Utility Air Regulatory Group v. EPA (and related cases) whether the EPA permissibly extended its oversight of greenhouse gases under the Clean Air Act to include stationary sources, such as power-generating plants or industrial facilities. The EPA’s regulatory activity in this sphere has flowed, in part, from an earlier Supreme Court decision, Massachusetts v. EPA (2007). There, the Court held that greenhouse gases are “air pollutants” under the Clean Air Act and that the EPA must regulate greenhouse gas emissions from new motor vehicles if it determines they may endanger public health or welfare. The EPA made such an endangerment finding in 2009, and in coordination with the National Highway Traffic Safety Administration, it subsequently promulgated rules regulating greenhouse gas emissions from new light-duty vehicles. The EPA then took the position that these rules (which addressed only mobile sources) automatically triggered permitting requirements for any stationary source that emitted greenhouse gases above a certain threshold. Whether the Court endorses this leap from mobile to stationary sources could substantially affect the course of the federal government’s climate change policy.
The second set of cases — EPA v. EME Homer City Generation and American Lung Association v. EME Homer City Generation — concerns the Clean Air Act’s “good neighbor” provisions, which require the EPA and states to address interstate movement of air pollution that affects downwind states’ ability to meet air quality standards. In 2011, the EPA promulgated regulations for determining how much an upwind state contributes to air pollution in its downwind counterparts. The U.S. Court of Appeals for the District of Columbia Circuit rejected EPA’s methodology, and the Supreme Court will consider procedural and substantive challenges to that decision.
The Court also will rule on a number of cases that raise important issues in the field of intellectual property (see “Intellectual Property and Technology: Patent Issues to Watch in 2014”).
Two patent cases have drawn substantial attention from the technology industry. The first is a sequel to the Court’s 2007 decision in MedImmune, Inc. v. Genentech, Inc., in which a patent licensee was permitted to bring a declaratory judgment action against the patent holder, claiming that no royalties were due because the licensed product did not infringe the patent. In Medtronic, Inc. v. Boston Scientific Corp., the Court will consider who bears the burden of proof in such a suit: whether the patentee must prove infringement, or the licensee must show that its products do not infringe the patent.
The second patent case, Alice Corporation Pty. Ltd. v. CLS Bank International, will ask the Court to address whether certain “computer-implemented” inventions are eligible for patent protection. The patent at issue involves a computer-based system for exchanging financial instruments. A highly fractured en banc U.S. Court of Appeals for the Federal Circuit ruled that the patent was invalid, but no single rationale commanded a majority. The case raises difficult questions about the circumstances, if any, under which computer software may be patented. The Supreme Court’s answer could have wide-ranging implications both for producers and consumers of technology.
The Court also will examine whether, and under what circumstances, the equitable defense of laches may bar a copyright infringement claim. The case, Petrella v. Metro-Goldwyn-Mayer, Inc., involves a 2009 lawsuit concerning rights to the book and two screenplays that allegedly formed the basis for the film “Raging Bull.” Although the lawsuit only sought recovery for infringement during the three preceding years (consistent with the three-year statute of limitations under the copyright laws), the plaintiff delayed bringing infringement claims for nearly two decades. The Supreme Court will consider whether lower courts appropriately determined, on summary judgment, that the copyright infringement claim was barred by laches.
In BG Group PLC v. Republic of Argentina, the Court will consider whether the Federal Arbitration Act requires courts or arbitrators to determine whether a precondition to arbitration has been satisfied. Under the statute, parties to an arbitration agreement are generally free to structure the dispute resolution process as they choose, designating certain issues to be resolved through litigation and others through arbitration. But who should decide a disputed issue when the arbitration agreement is silent? The Supreme Court has distinguished between two types of disputes: (i) “questions of arbitrability,” which are potentially dispositive gateway questions about whether a dispute is suitable for arbitration, and which are presumptively for a court to decide; and (ii) “procedural questions,” which grow out of a dispute and bear on its final disposition, and which are presumptively for the arbitrator to decide. The distinction between questions of arbitrability and procedural questions has proven elusive in practice, however.
The dispute in BG Group arose under a treaty between Argentina and the United Kingdom providing that conflicts between an investor and the host state would be resolved in the host state’s courts. If the conflict remained unresolved after 18 months, however, the treaty permitted a resort to arbitration. BG Group, a British corporation that had invested in Argentine gas companies, invoked the treaty’s arbitration clause without first filing a claim in Argentine court. An arbitration panel determined that this failure did not preclude arbitration and awarded BG Group more than $180 million in damages. The question now before the Supreme Court is whether the dispute over the litigate-and-wait precondition was a question of arbitrability that should have been resolved by a court rather than by the arbitrators.
Class Actions and Securities Law
The Class Action Fairness Act (CAFA) permits removal to federal court of “mass actions” that involve the claims of “100 or more persons.” The question in Mississippi ex rel. Hood v. AU Optronics Corp. is whether this definition permits removal of a so-called parens patriae suit — a suit in which a state litigates as a representative of its citizens. State attorneys general increasingly have turned to such suits as a tool for enforcing a range of state laws, including consumer protection, environmental, civil rights and antitrust laws. In AU Optronics, the U.S. Court of Appeals for the Fifth Circuit had ruled that parens patriae suits are mass actions that are properly removable to federal court. It reasoned that, even though the state is the sole named plaintiff, the citizens on whose behalf the state sues also are “real parties in interest” and, therefore, count toward CAFA’s 100-person threshold. In a unanimous opinion by Justice Sonia Sotomayor, the Supreme Court has now reversed, concluding as a matter of statutory interpretation that the phrase “100 or more persons” does not encompass unnamed persons, even if they are real parties in interest. The Court accordingly ordered that the case be remanded to state court. The Court’s ruling means that parens patriae suits typically will not be removable to federal court, which is commonly viewed as a less favorable environment than state court for plaintiffs in such suits.
Halliburton Co. v. Erica P. John Fund, Inc. is a potential blockbuster in the field of securities law. There, the Court will reconsider the fraud-on-the-market theory: a presumption that securities investors rely on an efficient market that reflects all public information. The Supreme Court’s embrace of the theory in 1988 — which allowed suits for fraud without a showing of individual reliance on the allegedly fraudulent misrepresentation — made the modern securities class action possible. In Halliburton, the Court will decide whether to change course; if it does so, it could significantly transform private actions under the securities laws (see “Securities Litigation Landscape Continues to Evolve in 2014”).
Other Business Cases
Two other business cases from this term, one of which the Court decided on December 3, 2013, concern the proper forum for resolving disputes.
Walden v. Fiore asks whether the requirements of personal jurisdiction and statutory venue are satisfied if the defendant’s only contact with the forum state is his knowledge that the plaintiff has connections to that state. In Walden, the plaintiffs were stopped by federal law enforcement officials in Georgia while traveling home to Nevada. Alleging that the officials improperly seized $97,000 from their luggage, the plaintiffs filed suit in the U.S. District Court for the District of Nevada. The district court dismissed the suit for lack of personal jurisdiction, but the U.S. Court of Appeals for the Ninth Circuit reversed, finding that the officers had “expressly aimed” their conduct toward Nevada by targeting persons known to have substantial connections there. The Ninth Circuit also held that Nevada was a proper venue under the federal venue statute because the plaintiffs had suffered harm there, even though the allegedly unlawful conduct occurred in Georgia. The Supreme Court will consider both the personal jurisdiction and venue rulings, and its decision could have important implications for cases involving parties from multiple jurisdictions, such as those arising from communications and commerce conducted over the Internet.
Finally, in Atlantic Marine Construction Co. v. U.S. District Court for the Western District of Texas, the Court recently ruled in favor of forum selection clauses — contractual provisions in which the parties designate in advance the jurisdiction where a dispute should be litigated. The question in Atlantic Marine Construction was what a court should do with a breach-of-contract suit when the contract at issue contained a clause specifying that litigation should occur in a different forum. In a unanimous opinion written by Justice Samuel Alito, the Supreme Court ruled that, absent exceptional circumstances, such a court should normally grant a motion to transfer on the ground of forum non conveniens, sending the dispute to the contractually agreed-upon jurisdiction. The ruling is consistent with the Court’s recent emphasis on giving effect to contractual language and closing avenues for parties to circumvent the terms of their agreements.
*This article appeared in the firm's sixth annual edition of Insights on January 16, 2014.