The Xbox 360 is designed for gaming. Appellate litigation, gamers learned, is not. On behalf of a putative class of purchasers of the Xbox 360, a group of gamers brought suit alleging a defect with the consoles. After the district court struck the class allegations, plaintiffs sought permission to appeal under Rule 23(f), which the Ninth Circuit denied. Rather than proceeding in litigation to final judgment, plaintiffs instead voluntarily dismissed their claims, with prejudice, while reserving a right to appeal the order striking class allegations. Plaintiffs then appealed the order under Section 1291. On appeal, the Ninth Circuit held that it had appellate jurisdiction and thus the case was still “sufficiently adverse” to be heard under §1291. The Supreme Court granted certiorari on the question of whether courts of appeals “have jurisdiction under §1291 and Article III . . . to review an order denying class certification (or, as here, an order striking class allegations) after the named plaintiffs have voluntarily dismissed their claims with prejudice.” Writing for the majority in Baker, Justice Ginsburg reasoned that permitting plaintiffs’ back door to the appellate courts to remain open would defeat the even-handedness codified as part of the final judgment rule under §1291 and in the Federal Rules of Civil Procedure. For similar reasons, Justice Ginsburg wrote, the Court previously rejected the judicially-created “death-knell doctrine”—under which an appellate court could review an order refusing to certify a class when the rejection of class certification “sounded the ‘death knell’ of the action”—because it served only to favor the plaintiffs. Describing plaintiffs’ circumvention tactic as a “voluntary dismissal device,” the Court held that permitting only plaintiffs to immediately appeal adverse class certification orders would be manifestly unfair and upset the balance between the parties. Indeed, as the Court noted, “the ‘class issue’ may be just as important to defendants . . . for an order granting certification . . . may force a defendant to settle rather than . . . run the risk of potentially ruinous liability.” Yet plaintiffs’ tactic would confer no right to immediate appeal on defendants. Moreover, the Court held, plaintiffs’ voluntary dismissal tactic would “undercut Rule 23(f)’s discretionary regime,” which states that interlocutory appeals of grants or denials of class certification may be permitted by a federal court of appeals, but do not create an obligation on the part of Article III courts. The primary drafters of this rule believed that creating a right to interlocutory appeal could be abused, and instead granted such a decision “to the sole discretion of the court of appeals.” Plaintiffs’ maneuver to manufacture appellate jurisdiction would subvert this discretion by impermissibly “transform[ing] a tentative interlocutory order . . . into a final judgment claims with prejudice—subject, no less, to the right to ‘revive’ those claims if the denial of class certification is reversed on appeal.” To embrace plaintiffs’ reasoning would render “Congress’ final decision rule . . . a pretty puny one.” The majority concluded that “Congress chose the rulemaking process to settle the matter, and the rulemakers did so by adopting Rule 23(f )’s evenhanded prescription. It is not the prerogative of litigants or federal courts to disturb that settlement.” Taking a more narrow view, in his concurrence, Justice Thomas wrote that though he disagreed with the majority’s interpretation of §1291—because “[w]hether a dismissal with prejudice is ‘final’ depends on the meaning of §1291, not Rule 23(f )”—plaintiffs nevertheless could not appeal because the court lacked Article III jurisdiction. By voluntarily dismissing their claims, “the plaintiffs asked the District Court to dismiss their claims, they consented to the judgment against them and disavowed any right to relief from Microsoft,” including their right to appeal the order on class certification. Baker serves as an important reminder to litigants to consider both the purpose and intent of the Federal Rules of Civil Procedure, which take an even-handed approach. The downstream effects of an alternative ruling would have been significant, as defendants could face undue and increased pressure to settle potentially meritless cases rather than risk incurring the large expense of litigating a judicially-created, one-sided appellate process. There is no appellate “cheat code” available only to plaintiffs, and the Supreme Court has helped ensure that one of the most seminal moments in class litigation remains a fair game.
Today, the U.S. Supreme Court unanimously held that any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date the claim accrued. The decision in Kokesh v. SEC, No. 16-529, resolved a split among Courts of Appeals whether the statute of limitations that applies to SEC enforcement actions seeking a penalty or forfeiture (28 U.S.C. § 2462) applies when disgorgement is sought. The Court had earlier applied that statute of limitations to claims by the SEC seeking a civil monetary penalty, and held that the limitations period begins to run when the violation occurs, not when it is discovered by the government. Gabelli v. SEC, 568 U.S. 442 (2013).
The five-year statute of limitations applies to “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture.” The Court held that the imposition of disgorgement in an SEC enforcement action is a “penalty,” thus subject to the five-year limitations period. In reaching that conclusion, the Court noted that disgorgement is imposed as a consequence of violation of a public law, not because some individual was aggrieved. Another element of the Court’s reasoning was that when disgorgement is ordered in an enforcement action the remedy is not compensatory. Instead, disgorged profits are paid to the court, and it is within the discretion of the court to determine how and to whom the money will be distributed.
Perhaps most important among the Court’s rationales, the primary purpose of disgorgement ordered in an enforcement action is deterrence, and sanctions imposed to deter infractions of public laws are “inherently punitive.” The Court noted that the amount paid is often greater than the defendant’s gain so that the defendant is not, in all cases, merely restored to the status it would have occupied had it not broken the law.
The oral argument in the case included considerable colloquy on the source of a court’s power to order disgorgement in an SEC enforcement action. In its decision the Court stated, “Nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings . . . .” (Slip Op., p. 5, n. 3)
The obvious effect of the decision will be to require the SEC to be expeditious in filing cases seeking not only civil monetary penalties but also, now, disgorgement. The Court did not address whether the remedy of an injunction, which often has collateral consequences for the defendant, or of declaratory relief is subject to this statute of limitations. The Court also did not discuss the effect a tolling agreement would have on the running of the statute.
Today, the Supreme Court handed a long-awaited victory to religiously affiliated organizations operating pension plans under ERISA’s “church plan” exemption. In a surprising 8-0 ruling, the Court agreed with the Defendants that the exemption applies to pension plans maintained by church affiliated organizations such as healthcare facilities, even if the plans were not established by a church. Justice Kagan authored the opinion, with a concurrence by Justice Sotomayor. Justice Gorsuch, who was appointed after oral argument, did not participate in the decision. The opinion reverses decisions in favor of Plaintiffs from three Appellate Circuits – the Third, Seventh, and Ninth.
For those of you not familiar with the issue, ERISA originally defined a “church plan” as “a plan established and maintained . . . for its employees . . . by a church.” Then, in 1980, Congress amended the exemption by adding the provision at the heart of the three consolidated cases. The new section provides: “[a] plan established and maintained . . . by a church . . . includes a plan maintained by [a principal-purpose] organization.” The parties agreed that under those provisions, a “church plan” need not be maintained by a church, but they differed as to whether a plan must still have been established by a church to qualify for the church-plan exemption.
The Defendants, Advocate Health Care Network, St. Peter’s Healthcare System, and Dignity Health, asserted that their pension plans are “church plans” exempt from ERISA’s strict reporting, disclosure, and funding obligations. Although each of the plans at issue was established by the hospitals and not a church, each one of the hospitals had received confirmation from the IRS over the years that their plans were, in fact, exempt from ERISA, under the church plan exemption because of the entities’ religious affiliation.
The Plaintiffs, participants in the pension plans, argued that the church plan exemption was not intended to exempt pension plans of large healthcare systems where the plans were not established by a church.
Justice Kagan’s analysis began by acknowledging that the term “church plan” initially meant only “a plan established and maintained . . . by a church.” But the 1980 amendment, she found, expanded the original definition to “include” another type of plan—“a plan maintained by [a principal-purpose] organization.’” She concluded that the use of the word “include” was not literal, “but tells readers that a different type of plan should receive the same treatment (i.e., an exemption) as the type described in the old definition.”
Thus, according to Justice Kagan, because Congress included within the category of plans “established and maintained by a church” plans “maintained by” principal-purpose organizations, those plans—and all those plans—are exempt from ERISA’s requirements. Although the DOL, PBGC, and IRS had all filed a brief supporting the Defendants’ position, Justice Kagan mentioned only briefly the agencies long-standing interpretation of the exemption, and did not engage in any “Chevron-Deference” analysis. Some observers may find this surprising, because comments during oral argument suggested that some of the Justices harbored concerns regarding the hundreds of similar plans that had relied on administrative interpretations for thirty years.
In analyzing the legislative history, Justice Kagan aptly observed, that “[t]he legislative materials in these cases consist almost wholly of excerpts from committee hearings and scattered floor statements by individual lawmakers—the sort of stuff we have called `among the least illuminating forms of legislative history.’” Nonetheless, after reviewing the history, and as she forecasted by her questioning at oral argument (see our March 29, 2017 Blog, Supreme Court Hears “Church Plan” Erisa Class Action Cases), Justice Kagan rejected Plaintiffs’ argument that the legislative history demonstrated an intent to keep the “establishment” requirement. To do so “would have prevented some plans run by pension boards—the very entities the employees say Congress most wanted to benefit—from qualifying as `church plans’…. No argument the employees have offered here supports that goal-defying (much less that text-defying) statutory construction.”
In sum, Justice Kagan held that “[u]nder the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a `church plan,’ regardless of who established it.”
Justice Sotomayor filed a concurrence joining the Court’s opinion because she was “persuaded that it correctly interprets the relevant statutory text.” Although she agreed with the Court’s reading of the exemption, she was “troubled by the outcome of these cases.” Her concern was based on the notion that “Church-affiliated organizations operate for-profit subsidiaries, employee thousands of people, earn billions of dollars in revenue, and compete with companies that have to comply with ERISA.” This concern appears to be based on the view that some church-affiliated organizations effectively operate as secular, for-profit businesses.
- Although this decision is positive news for church plans, it may not be the end of the church plan litigation. Numerous, large settlements have occurred before and since the Supreme Court took up the consolidated cases, and we expect some will still settle, albeit likely for lower numbers.
- In addition, Plaintiffs could still push forward with the cases on the grounds that the entities maintaining the church plans are not “principal-purpose organizations” controlled by “a church.”
The U.S. Supreme Court took on the analysis of laches in a March 2017 decision in SCA Hygiene Products Aktiebolag, et al., v. First Quality Baby Products, LLC, et. al. The Supreme Court held that the equitable doctrine of laches cannot be invoked as a defense against a claim for damages brought within the six-year limitations period of 35 U.S.C. § 286 – and further held that such a remedy is not codified in 35 U.S.C. § 282.
Effectively, this holding eliminates the potential for a defendant to argue under the doctrine of laches that a plaintiff in a patent infringement action unreasonably delayed bringing the patent infringement action and allows the plaintiff to recover damages over the previous six-year period, regardless of when the plaintiff became aware of the infringement or the length of time the infringement has occurred.
Before SCA, the analysis of the remedy of laches in limiting patent damages was controlled by the holding in A.C. Auckerman Co. v. R.L. Chaides Constr. Co., 990 F.2d 1020, 1030 (Fed.Cir. 1992). In Auckerman, the Federal Circuit held that § 282 recognized a laches defense in harmony with § 286 as the laches defense “invokes the discretionary power of the court to limit the defendant’s liability for infringement by reason of the equities between the particular parties.” In this recent case, First Quality argued that Congress had implicitly ratified the proposition that § 282 includes a laches defense by leaving the language of § 282 untouched after this interpretation of § 282 had been applied by lower courts. The Supreme Court rejected the premise that the remedy of laches was codified by § 282, holding that the period of limitation codified in § 286 by Congress “reflects a congressional decision that the timeliness of covered claims is better judged on the basis of a generally hard and fast rule rather than the sort of case-specific judicial determination that occurs when a laches defense is asserted.” The Supreme Court found that Congress’ clear establishment of the period of reasonableness for bringing a patent infringement claim is reflected in the language of § 286, which reads, in part:
Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.
The Supreme Court’s holding was not unexpected and the reasoning followed the court’s holding in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), which addressed similar language in the Copyright Act and confirmed that laches was not available as a defense during the codified limitation period of three years. In SCA, the Supreme Court found no reason to disregard the general rule that laches does not apply to damages suffered within the period of a statute of limitations in the specific context of a patent infringement suit.
The ruling in SCA will now allow a patent owner to wait to bring an infringement suit without concern for it being found that it waited an unreasonably long. For example, a patent owner may wait until the accumulated damages by a putative infringer have grown to an amount that makes filing a suit more attractive financially. It should be noted that the § 286 period of limitation is on the recovery of damages and does not bar bringing suit at any time during the period of enforceability of the patent. The patent owner, absent some other limitation on damages available to the putative infringer, may wait for any amount of time during the period of enforceability of the patent and bring suit.
Notably, this decision does not address the equitable principle of estoppel, which was also at issue in the case, but not part of the appeal. The ruling also does not change the effect of the various limitations on damages codified in 35 U.S.C. § 287.
On March 6, 2017, the Supreme Court, in a one-sentence summary disposition, remanded the case of Gloucester County Sch. Bd. v. G.G. to the U.S. Court of Appeals for the Fourth Circuit “for further consideration in light of the guidance document issued by the Department of Education and Department of Justice on February 22, 2017.” For those unfamiliar with Gloucester County, the case involves a public school’s obligations to a transgender student under Title IX and, in particular, whether Title IX’s prohibition against sex discrimination requires a school to treat transgender students consistent with their gender identity when providing sex-separated facilities, such as toilets, locker rooms, and showers.
So what does this have to do with wage-and-hour class actions? As it turns out, in Gloucester County, the Supreme Court was poised to consider the scope, and perhaps the continuing viability, of the Auer doctrine, which frequently comes into play in wage-and-hour litigation. Under the Auer doctrine, courts generally will enforce an agency’s interpretation of its own regulations unless that interpretation is “plainly erroneous or inconsistent with the regulation.” In wage-and-hour class actions, this often results in cases being decided based on guidance issued by the Department of Labor through opinion letters, its Field Operations Handbook, and other sources.
This deference to the Department of Labor can be frustrating for employers and attorneys practicing wage-and-hour law because the guidance issued by the Department of Labor often changes with each new Presidential administration. For example, an entire industry can decide to classify a group of employees as exempt from the FLSA’s overtime requirements based on an opinion letter from the Department of Labor only to learn years later that the Department has withdrawn the opinion letter after the start of a new administration. If courts are obligated under Auer to defer to these shifting interpretations issued by the Department of Labor, it can create a great deal of uncertainty for employers seeking to comply with the FLSA and for parties litigating wage-and-hour class actions.
In the long term, eliminating or narrowing the Auer doctrine could provide more consistency for employers and litigants. With the remand of Gloucester County, that is unlikely to happen in the near future. In the short term, however, the continuing viability of the Auer doctrine may benefit employers who are hopeful that the Department of Labor, under the Trump administration, will take a more employer-friendly view of certain regulations. For now, the Department of Labor remains free to shape FLSA through opinion letters and other guidance documents and without having to resort to the time-consuming process of issuing revised regulations.
Jackson Lewis P.C. © 2017
In case your news and twitter accounts are down, and you otherwise have not heard the news… President Trump has nominated Judge Gorsuch from the U.S. Court of Appeals for the Tenth Circuit to fill Justice Antonin Scalia’s vacant Supreme Court seat. There are surely countless articles about his nomination hitting the airwaves even as I type this, but for employers who struggle with leave management issues, a quick review of the Hwang v. Kansas State University decision, authored by Judge Gorsuch, may provide employers with hope that leave management law could move in the right direction. In Hwang, the Tenth Circuit determined that a more than a six month leave of absence was an unreasonable accommodation. Some of the more memorable quotes from that decision include:
“Must an employer allow employees more than six months’ sick leave or face liability under the Rehabilitation Act? Unsurprisingly, the answer is almost always no.”
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“It perhaps goes without saying that an employee who isn’t capable of working for so long isn’t an employee capable of performing a job’s essential functions — and that requiring an employer to keep a job open for so long doesn’t qualify as a reasonable accommodation. After all, reasonable accommodations — typically things like adding ramps or allowing more flexible working hours — are all about enabling employees to work, not to not work.”
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“Still, it’s difficult to conceive how an employee’s absence for six months — an absence in which she could not work from home, part-time, or in any way in any place — could be consistent with discharging the essential functions of most any job in the national economy today. Even if it were, it is difficult to conceive when requiring so much latitude from an employer might qualify as a reasonable accommodation. Ms. Hwang’s is a terrible problem, one in no way of her own making, but it’s a problem other forms of social security aim to address. The Rehabilitation Act seeks to prevent employers from callously denying reasonable accommodations that permit otherwise qualified disabled persons to work — not to turn employers into safety net providers for those who cannot work.”
Although Hwang involved the Rehabilitation Act, his opinion addressed head on the EEOC’s views on ADA reasonable accommodations in the leave of absence context. And with respect to “inflexible” leave policies that the EEOC has been pushing against in recent years, Judge Gorsuch said:
“Neither is there anything inherently discriminatory in the fact the University’s six-month leave policy is ‘inflexible,’ as Ms. Hwang would have us hold. To the contrary, in at least one way an inflexible leave policy can serve to protect rather than threaten the rights of the disabled — by ensuring disabled employees’ leave requests aren’t secretly singled out for discriminatory treatment, as can happen in a leave system with fewer rules, more discretion, and less transparency.”
A nomination certainly doesn’t guarantee confirmation and, even if confirmed, Judge Gorsuch’s selection would not change ADA law overnight. However, Judge Gorsuch’s opinion in Hwang is arguably the most vigorous challenge to the EEOC’s view of leave as a reasonable accommodation and very well may be the proverbial light at the end of the tunnel for employers.
Jackson Lewis P.C. © 2017