The Gorsuch Nomination: The Return of the Business Friendly Court?

by Orrick, Herrington & Sutcliffe LLP
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Assuming Judge Gorsuch's confirmation, the Court will add a Justice with extensive commercial litigation experience, a particular expertise in antitrust and securities law, and a track record on the bench that demonstrates a sensitivity to the challenges facing businesses. After reviewing Judge Gorsuch's background and record of judicial opinions, it appears that the prior relatively pro-business conservative trajectory of the Supreme Court will now be restored.

Before joining the Tenth Circuit Court of Appeals, Judge Gorsuch spent a decade in private practice as a commercial litigator. His writings from that time, combined with the more than 230 judicial opinions he has authored on the bench, provide strong clues as to how a Justice Gorsuch may approach some of the most pressing commercial issues likely to find their way to the Supreme Court in the coming terms. 

The following are particularly significant areas of the Court's business jurisprudence where Judge Gorsuch's vote could often be decisive. 

Class Actions

Five years ago, the Supreme Court in Wal-Mart v. Dukes heralded a new era of heightened judicial scrutiny of class actions by requiring district courts to aggressively police class certification requests. The Court reinforced that position in later cases like Comcast v. Behrend—again raising the bar for what plaintiffs must demonstrate to certify a class.

Although courts have not applied Wal-Mart and Comcast as broadly as some believed they would, the cases have provided powerful tools for our clients to defeat certification and reduce the leverage of class action plaintiffs in settlement negotiations. So it was no surprise when the Supreme Court's class action jurisprudence appeared near the top of the list of targets that the plaintiffs' bar identified as ripe for change in the event of a left-leaning court had the election gone the other way. 

But with a Justice Gorsuch on the Court, what should we expect? In the 2008 case of Shook v. Board of County Commissioners of County of El Paso, Judge Gorsuch authored the majority opinion that affirmed a district court's denial of class certification in a case brought by mentally ill inmates. The majority upheld the district court's conclusion that the class would be unmanageable, in large part because of the difficulty in crafting injunctive relief applicable to the class as a whole. Although not a business case, those same principles resonate in the commercial class action context.

In a 2005 working paper on securities fraud class actions, Gorsuch (then a commercial litigation partner) acknowledged the general utility of the class action device in some contexts, but remarked that "economic incentives" in "securities litigation encourage class action lawyers to bring meritless claims and prompt corporate defendants to pay dearly to settle such claims." And in a separate 2005 article, Gorsuch commented that "securities fraud litigation imposes an enormous toll on the economy, affecting virtually every public corporation in America at one time or another and costing businesses billions of dollars in settlements every year."

Given those indications, it is safe to assume that Wal-Mart and Comcast will remain good law if Judge Gorsuch joins the Court, and that the Court may expand the tools available to defendants to defeat class certification.

A question currently percolating in the circuit courts is how readily identifiable a class needs to be at the certification stage. Several circuits have recognized that to certify a class, an implicit threshold requirement is that the members of a proposed class be ascertainable. Courts, however, have disagreed about whether ascertainability is a separate pre-certification inquiry, and, if so, how rigorous a standard it is.

The Seventh Circuit has adopted an approach that allows for class certification without requiring plaintiffs to show that class members can actually be ascertained in a feasible and reliable way. Before Justice Scalia's passing, Orrick filed a petition for certiorari challenging the Seventh Circuit's holding. Many thought there was a good chance the Court would hear the case. But after Justice Scalia died, the Court denied review. With Judge Gorsuch on the Court, we believe there would be a good chance that the issue would be decided in the coming terms, and we are cautiously optimistic that the Court would hold that the methods to determine the contours of a class must be both reliable and feasible. 

A second pressing class action issue concerns whether plaintiffs can manufacture appellate jurisdiction to obtain review of a district court's denial of class certification. The Supreme Court granted certiorari in Microsoft v. Baker to address that question. In Microsoft, a group of plaintiffs brought a class action suit alleging defects in a video game system. The district court denied certification and the Ninth Circuit did not permit an interlocutory appeal. Instead of settling their claims, the plaintiffs voluntarily dismissed the claims with prejudice and then filed a notice of appeal to challenge the certification decision.

The Ninth Circuit held that the voluntary dismissal of claims could give rise to appellate jurisdiction to review the certification decision "because a dismissal of an action with prejudice, even when such dismissal is the product of a [voluntary] stipulation, is a sufficiently adverse—and thus appealable—final decision."

The Supreme Court granted certiorari in January 2016 to consider the question and has scheduled oral argument for March. If Judge Gorsuch is confirmed, we expect the Court to likely disagree with the Ninth Circuit and hold that there was no jurisdiction to consider the appeal. That would mean that after a district court denies class certification and a court of appeals refuses to hear an interlocutory appeal of that decision, plaintiffs can either settle the case and forgo any appeal, or litigate their individual claim to verdict and then pursue an appeal.

Arbitration

A second area of business jurisprudence that will likely remain front-and-center at the Supreme Court concerns the ability of companies to enforce agreements to arbitrate claims. The Federal Arbitration Act establishes "a liberal policy favoring arbitration agreements"—a policy that the Court has expansively interpreted in recent decades as it has emphasized that district courts must "rigorously enforce" agreements to arbitrate. As with the Court's class-action jurisprudence, the seminal cases expanding the reach of the FAA have featured narrow majorities with sharp dissents.

In 2001, for instance, a 5-4 majority held in Circuit City Stores v. Adams that that the FAA mandates the enforcement of arbitration agreements in employment contracts for non-transportation workers. A decade later, AT&T v. Concepcion held that the FAA preempts state laws that prohibit the enforcement of arbitration agreements requiring that complaints be arbitrated individually instead of on a collective or class basis.

Given the vigorous dissents in those cases and the growing scrutiny of arbitration agreements in the news media and popular culture, many commentators predicted a significant pullback in the Court's arbitration jurisprudence if the Court swung to the left with a liberal appointee filling Justice Scalia's seat. But Judge Gorsuch's opinions on the Tenth Circuit suggest that his confirmation would restore the pro-arbitration direction of the Court. Here is a sample of relevant opinions he has authored:

  • Ragab v. Howard: Dissenting, Judge Gorsuch disagreed with the majority's refusal to compel arbitration. The majority held that the parties never had a meeting of the minds regarding arbitration because there were six different arbitration agreements at issue, each with different provisions. Judge Gorsuch, however, concluded that the parties clearly intended to arbitrate their disagreement, even if some of the details were unclear. In so concluding, Judge Gorsuch emphasized the FAA's requirement that arbitration agreements be treated just like other contracts.
  • Howard v. Ferrellgas Partners: In a majority opinion vacating a district court's refusal to compel arbitration, Judge Gorsuch rebuked the district court for failing to quickly decide the arbitrability of a claim. As Judge Gorsuch wrote, "The object is always to decide quickly—summarily—the proper venue for the case, whether it be the courtroom or the conference room, so the parties can get on with the merits of their dispute." More colorfully, Judge Gorsuch commented that "[p]arties should not have to endure years of waiting and exhaust legions of photocopiers in discovery and motions practice merely to learn where their dispute will be heard. The Act requires courts process the venue question quickly so the parties can get on with the merits of their dispute in the right forum." 

Judge Gorsuch's appointment will also be important to the outcome in three recent cases the Supreme Court granted to decide whether the National Labor Relations Act (NLRA), which grants employees the right to engage in concerted action and collective activities, conflicts with contracts that require employees to arbitrate claims individually, and not as a group or class. The Ninth and Seventh Circuits have agreed with the National Labor Relations Board (NLRB) that the NLRA bars the enforcement of mandatory employment arbitration agreements that require the individual arbitration of claims. Other circuits have disagreed. The stakes are substantial, potentially affecting thousands of employers and millions of workers who have signed arbitration agreements as a condition of employment.  

Given Judge Gorsuch's deep-rooted skepticism of administrative agency interpretations of the law, described further below, and his history of enforcing arbitration agreements according to their terms, he may likely disagree with the NLRB's conclusion that class action waivers are unenforceable in mandatory employment arbitration agreements.  In any event, his vote on this case may serve as a bellwether as to how a Justice Gorsuch will approach statutory and arbitration issues in the years to come. 

Deference to Administrative Agencies

A common issue that arises in a variety of statutory and regulatory schemes is how much deference courts give to agencies like the Department of Labor when the agencies interpret statutes that they administer. In this area, Judge Gorsuch has repeatedly expressed a distrust of the power entrusted to agencies by the Supreme Court's landmark decision in Chevron U.S.A. v. Natural Resources Defense Council, which established a framework within which courts routinely defer to agency interpretations of statutes as long as they are reasonable. In a concurring opinion that Judge Gorsuch authored in a recent immigration case, he argued that Chevron has allowed "executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers' design. Maybe the time has come to face the behemoth."

A decision to revisit Chevron could have significant implications, and it is unlikely that the Court will do so in the near future. But Judge Gorsuch's opinions on the Tenth Circuit also shed light on how he would approach individual cases involving agency rulings. Among those opinions:

  • NLRB v. Community Health Services: Dissenting, Judge Gorsuch disagreed with the majority's decision to affirm the Board's award of full backpay to certain employees as a result of an improper reduction in hours, where the employees had earned income from secondary employment that was not deducted from the backpay award. Judge Gorsuch vigorously disputed the Board's approach to the compensation calculation, remarking: "In the end, it's difficult to come away from this case without wondering if the board's actions stem from a frustration with the current statutory limits on its remedial powers—a frustration that it cannot pursue more tantalizing goals like punishing employers for unlawful actions or maximizing employment…. But … frustration should not beget license. In our legal order the proper avenue for addressing any dissatisfaction with congressional limits on agency authority lies in new legislation, not administrative ipse dixit."
  • TransAm Trucking, Inc. v. Administrative Review Board: Dissenting, Judge Gorsuch disagreed with the majority's decision upholding the Department of Labor's broad interpretation of whistleblower provisions in a federal statute. Channeling Justice Scalia, Judge Gorsuch argued that the interpretation was untethered from the statutory language itself:  "Maybe the Department would like such a law, maybe someday Congress will adorn our federal statute books with such a law. But it isn't there yet. And it isn't our job to write one—or to allow the Department to write one in Congress's place."
  • Compass Environmental, Inc. v. OSHRC: Dissenting, Judge Gorsuch disagreed with the majority's decision to uphold an Occupational Safety and Health Review Commission order that fined an employer after an excavator operator died on-the-job after being electrocuted by an overhead power line. Judge Gorsuch believed that the case was another example of administrative agencies overstepping their bounds and "penalize[ing] private persons and companies" without any evidence of a legal violation. 
  • Teamsters Local Union No. 455 v. NLRB: In a majority opinion affirming an NLRB order, Judge Gorsuch agreed with the Board's rejection of a labor union's challenge to an employer's lockout. The union argued that the lockout was tainted by unlawful conduct, and that employees should receive backpay as a result. The Board disagreed and Judge Gorsuch upheld the Board's ruling. In so holding, Judge Gorsuch quoted Supreme Court precedent establishing that an employer may "consistent with the NLRA, lock out employees during collective bargaining negotiations to 'bring[ ] economic pressure to bear in support of [its] legitimate bargaining position.'"

Other Areas of Interest

Securities Litigation: The most prominent securities litigation opinion that Judge Gorsuch has authored—MHC Mutual Conversion Fund, L.P. v. Sandler O'Neill & Partners, L.P.—suggested that he would take a narrow view of liability in investor suits. The opinion concerned when a defendant may be held liable, pursuant to Section 11 of the Securities Act of 1933, for an opinion contained in a public statement, when the opinion turns out to be false. Judge Gorsuch's opinion held that the plaintiffs' allegations were insufficient to survive a motion to dismiss because they failed to adequately allege that the defendant knew the opinions were false when they were made, or that the defendant lacked an objectively reasonable basis for the opinion. A year later, the Supreme Court generally agreed with that view of Section 11 liability in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund. Judge Gorsuch's opinion, however, suggests that he would impose stricter limits on liability than what the Supreme Court imposed in Omnicare, insofar as Omnicare allows for liability in cases where a defendant lacked a reasonable basis for an opinion, in addition to cases where the defendant knew an opinion was false.  In MHC Mutual, Judge Gorsuch doubted "the consistency of [the reasonable basis] test with the statutory text and history," although his opinion did not expressly reject it.

Bankruptcy: Judge Gorsuch's bankruptcy jurisprudence is consistent with his textualist approach to other areas of the law. He has also been willing to criticize Supreme Court precedent that he believes strays from that approach. For instance, in the Chapter 13 case of In re Woolsey, Judge Gorsuch criticized the controlling Supreme Court opinion of Dewsnup v. Timm—which bars lien stripping in Chapter 7remarking that "the Dewsnuppian departure from the statute's plain language is the law. It may have warped the bankruptcy code's seemingly straight path into a crooked one. It may not be infallible. But until and unless the Court chooses to revisit it, it is final." Notably, Justice Scalia had dissented in Dewsnup because he believed the majority's opinion ignored the plain language of the Bankruptcy Code. Judge Gorsuch, like Justice Scalia, will therefore likely be unwilling to veer far from the plain meaning of statutory text to entertain policy arguments that frequently arise in the bankruptcy context.

Conclusion

If the Senate confirms Judge Gorsuch's nomination, we expect the Court to return to its business-friendly leanings and Judge Gorsuch to continue as a proponent of originalism and textualism in constitutional and statutory interpretation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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