United States Supreme Court Round-Up: Key Opinions from 2013 to 2014 and Upcoming High-Profile Business Disputes

Andrews Kurth

The 2013–2014 term of the United States Supreme Court resulted in a wide range of decisions of importance to business. In this article, we highlight some of the key opinions and explore their likely impacts. We also preview a few of the high-profile business disputes the Supreme Court has agreed to hear next term.

Key Business Cases from the 2013–2014 Term

American Chemistry Council v. Environmental Protection Agency: Holding: The Environmental Protection Agency (EPA) reasonably interpreted the Clean Air Act to require sources that would need permits based on their emission of chemical pollutants to comply with “best available control technology” for greenhouse gases. Effect: The decision reinforces the Supreme Court’s previous recognition that the EPA has the power to regulate greenhouse gases as pollutants. However, portions of the decision strongly cautioned the EPA against overreach, stating that the agency may not “bring about an enormous and transformative expansion in [its] regulatory authority without clear congressional authorization.” These comments suggest that the Supreme Court may take a hard line when the Obama Administration’s other climate regulations eventually go to court.

Daimler AG v. Bauman: Holding: A foreign company doing business in a state cannot be sued in that state for injuries allegedly caused by conduct that took place entirely outside of the United States. Effect: Daimler makes it much harder for plaintiffs to establish general jurisdiction over foreign entities. The opinion re-characterizes general jurisdiction as requiring the defendant to be “at home” in the state, a circumstance that the Supreme Court suggested will generally be limited to the places where the defendant is incorporated or where it has its principal place of business. Moreover, the fact that a domestic subsidiary whose activities are imputed to the foreign parent may be “at home” in the state will not make the foreign parent “at home” in that locale for purposes of general jurisdiction.

Halliburton v. Erica P. John Fund, Inc.: Holding: Plaintiffs in private securities fraud actions must prove that they relied on the defendants’ misrepresentations in choosing to buy stock. Basic v. Levinson’s holding that plaintiffs can satisfy this reliance requirement by invoking a presumption that the price of stock as traded in an efficient market reflects all public, material information, including material misstatements, remains viable. However, after Halliburton, defendants can defeat the presumption at the class certification stage by proving that the misrepresentation did not in fact affect the stock price. Effect: While investors will continue to pursue class actions following large dips in stock prices, the Halliburton decision helps to level the playing field by providing defendants a mechanism to stop such suits at the class certification stage.

Lawson v. FMR LLC: Holding: Employees of privately held contractors or subcontractors of a public company are protected by the anti-retaliation provision of the Sarbanes-Oxley Act of 2002 (SOX). Effect: Following Lawson, there will likely be an increase in SOX litigation against public and non-public companies. Because many of the issues concerning the scope and meaning of SOX have yet to be resolved, lower courts will continue to wrestle with defining the parameters of the law. Questions left unanswered byLawson include whether the whistleblower’s accusation must be related to work he or she performed for the company and whether the contract with the public company must have some relation to public accounting or securities compliance.

Chadbourne & Park LLP v. Troice: Holding: The Securities Litigation Uniform Standards Act of 1988 (SLUSA) does not preclude state-law class actions based on false representations that the uncovered securities that plaintiffs were purchasing were backed by covered securities. Effect: SLUSA bars the bringing of securities class actions “based upon statutory or common law of any state” in which the plaintiff alleges “a misrepresentation or omission of a material fact in connection with a purchase of sale of covered securities.” The statute defines “covered securities” to include only securities traded on a national securities exchange or those issued by investment companies.

U.S. v. Quality Stores: Holding: Severance payments to employees who are involuntarily terminated are taxable wages for purposes of the Federal Insurance Contributions Act. Effect: Employers should, under most circumstances, treat severance payments to involuntarily terminated employees as wages subject to FICA taxes. There are exceptions, however, and employers should therefore seek legal counsel to assist in determining the tax status of a particular severance arrangement.

Business Cases to Watch in the 2014–2015 Term

Integrity Staffing Solutions v. Busk: Whether time spent in security screenings is compensable under the Fair Labor Standards Act.

Mach Mining v. Equal Employment Opportunity Commission: Whether and to what extent a court may enforce the Equal Employment Opportunity Commission’s mandatory duty to conciliate discrimination claims before filing suit.

Omnicare v. Laborers District Council Construction Industry Pension Fund: Whether, for purposes of a claim under Section 11 of the Securities Act of 1933, a plaintiff may plead that a statement of opinion was untrue merely by alleging that the opinion itself was objectively wrong, or must the plaintiff also allege that the statement was subjectively false through allegations that the speaker’s actual opinion was different from the one expressed.

Young v. UPS: Whether, and in what circumstances, an employer that provides work accommodations to non-pregnant employees with work limitations must provide work accommodations to pregnant employees who are similar in their ability or inability to work.

As in recent years, the Supreme Court continues to grant review on more and more cases involving matters of concern to U.S. businesses. Andrews Kurth attorneys are available to provide further detail and guidance on the decisions highlighted here, and on any other issues of concern to your company that have reached the high court.

ARTICLE BY

OF

Halliburton II: Supreme Court Upholds Basic Presumption

Morgan Lewis logo

On June 23, the U.S. Supreme Court issued its long-anticipated decision in Halliburton Co. v. Erica P. John FundInc. (Halliburton II).[1] Chief Justice Roberts delivered the opinion of the Court, in which Justices Kennedy, Ginsburg, Breyer, Sotomayor, and Kagan joined. Justice Ginsburg filed a concurring opinion, in which Justices Breyer and Sotomayor joined. Justice Thomas filed an opinion concurring in the judgment, in which Justices Scalia and Alito joined.

The Halliburton II case generated significant publicity because it presented the Supreme Court with the opportunity to reexamine the fraud-on-the-market presumption created in Basic v. Levinson.[2] The Court in Basic held that, in a securities fraud class action, the plaintiff is entitled to a rebuttable presumption of reliance and, therefore, does not have to prove that each investor in the class relied on any alleged material misrepresentation. The foundation for the fraud-on-the market theory is the efficient-market theory, which presumes that, in an efficient market, all material, public information about a company is absorbed by the marketplace and reflected in the price of the security. The efficient-market theory has been under increasing attack in recent years, leading many to believe that the time may have come to overturn Basic.

In Halliburton II, the Supreme Court addressed whether to continue the fraud-on-the-market presumption unchanged, to cease the applicability of the fraud-on-the-market presumption altogether, or to alter the presumption. In the Court’s opinion, the majority declined to overrule or modify Basic’s presumption of classwide reliance, but it did hold that defendants may rebut the presumption at the class certification stage by introducing evidence that the alleged misrepresentation did not impact the market price. The majority determined that Halliburton had not demonstrated the “special justification” necessary to overturn “a long-settled precedent.”[3] The majority also rejected Halliburton’s request that the plaintiffs be required to show a price impact to invoke the presumption because “this proposal would radically alter the required showing for the reliance element.”[4] The majority did hold that defendants can rebut the presumption by showing lack of price impact at the class certification stage because “[t]his restriction makes no sense, and can readily lead to bizarre results.”[5] The majority therefore vacated the U.S. Court of Appeals for the Fifth Circuit’s judgment and remanded for further proceedings.

In a concurring opinion, Justice Ginsburg, joined by Justices Breyer and Sotomayor, noted that, although the decision would “broaden the scope of discovery available at certification,” the increased burden would be on defendants to show the absence of price impact, not on plaintiffs whose burden to raise the presumption of reliance had not changed.[6]

In a separate opinion concurring only in the judgment, Justice Thomas, joined by Justices Scalia and Alito, argued that Basic should be overturned for three reasons. First, the fraud-on-the–market theory has “lost its luster”[7] in light of recent developments in economic theory.[8] Second, the presumption permits plaintiffs to bypass the requirement—as set forth in some of the Court’s most recent decisions on class certification—that plaintiffs affirmatively demonstrate compliance with Rule 23. Third, the Basic presumption of reliance is “largely irrebuttable” because “[a]fter class certification, courts have refused to allow defendants to challenge any plaintiff’s reliance on the integrity of the market price prior to a determination on classwide liability,”[9] therefore effectively eliminating the reliance requirement.

The Supreme Court’s decision has significant implications for securities fraud litigation, particularly at the class certification stage. Although plaintiffs need not prove direct price impact and may instead still raise the presumption of reliance by showing an efficient market and that the information was material and public, defendants may now rebut this presumption before class certification by showing a lack of price impact. We believe that defendants’ ability to rebut the presumption by showing no price impact effectively swallows the rule that plaintiffs need not prove a price impact. This will undoubtedly lead to a battle of the experts at the class certification stage. Although the Court’s decision does not explicitly affect other proceedings, such as a motion to dismiss, the scope of the decision will certainly be tested in the coming months and years.

Article By:


[1]. No. 13-317 (U.S. June 23, 2014), available here.

[2]. 485 U.S. 224 (1988).

[3]Halliburton II, No. 13-317, slip op. at 4; see generally id. at 4–16.

[4]Id. at 17.

[5]. Id. at 19.

[6]. Id. at 1 (Ginsburg, J., concurring).

[7]Id. at 7 (Thomas, J., concurring).

[8]Id. at 8–9.

[9]. Id. at 13.