2024 Litigation Look Ahead Series: Challenges to Administrative Law Judges, Judicial Review Process Could Limit Executive Power

B&D is pleased to present the third installment of our 2024 Litigation Look Ahead series. (Read part two on the increased application of the major questions doctrine here.) In this section of the compilation, our litigation team highlights two pending Supreme Court cases examining the constitutionality of appointed administrative law judges and the judicial review process under the Administrative Procedure Act. The outcome of these cases could have significant ramifications on the enforcement power of the executive branch and the deadline for challenging final agency actions.

Securities and Exchange Commission v. Jarkesy, No. 22-859

CASE SUMMARY

The Securities and Exchange Commission (SEC) brought a civil enforcement action against George Jarkesy and an investment advisor, alleging securities fraud. SEC utilized the agency’s in-house administrative adjudication procedures to pursue the matter. SEC’s administrative law judge (ALJ) found Jarkesy and his co-defendants liable and ordered various remedies. The defendants pursued administrative appeals, unsuccessfully, and then sought review in the U.S. Court of Appeals for the Fifth Circuit. In May 2022, the Fifth Circuit held that the SEC’s use of ALJs to enforce civil securities laws violates the accused’s Seventh Amendment right to a jury trial. The Fifth Circuit further found the SEC’s administrative courts unconstitutional because the appointed judges are protected from removal, in violation of Article II of the Constitution, and Congress improperly granted the SEC legislative power by allowing the agency to decide whether to sue in administrative or federal court. The SEC petitioned the U.S. Supreme Court for certiorari, which it granted, and oral arguments took place on November 29, 2023.

IMPLICATIONS

The case challenges the constitutionality of appointed ALJs to resolve disputes. While Jarkesy only pertains to the SEC’s use of ALJs to enforce securities laws, EPA and many other federal agencies rely on in-house civil administrative proceedings to enforce laws, in lieu of civil actions in court. If the Supreme Court affirms the Fifth Circuit’s decision, the ruling could have broader impacts by eliminating or restricting the ability of other agencies to use ALJs. Such a result would channel more enforcement cases to the courts, a more time-consuming, resource-intensive, and costly process. Limiting the enforcement power of the executive branch would greatly impact how agencies enforce statutes and their regulations. A ruling in favor of the petitioners could also call into question the past decisions of ALJs. To minimize the enormous consequences of such a decision, the Supreme Court may find a middle ground, focusing on limitations on the Seventh Amendment right to a jury trial in the context of agency enforcement actions.

Corner Post, Inc. v. Board of Governors of the Federal Reserve System, No. 22-1008

CASE SUMMARY

The U.S. Supreme Court is considering a circuit split regarding the six-year statute of limitations for Administrative Procedure Act (APA) challenges, a cornerstone of environmental litigation. Under the APA, any person who claims to have been injured by an agency’s action has the right to go to court to challenge the action, but they must file their action within six years after the “right of action first accrues.”

In this case, Corner Post, Inc., the operator of a convenience store and truck stop, challenged the Federal Reserve’s debit card interchange rules, known as Regulation II, which set the range of fees larger card-issuing banks can charge merchants for processing debit card payments, asserting the rules were promulgated in violation of the APA. The rules were adopted in 2011. Corner Post, which opened for business seven years later in 2018, argued that the statute of limitations does not begin to run until a plaintiff suffers a “legal wrong” or becomes “adversely affected or aggrieved,” as required by 5 U.S.C. § 702. Consequently, the statute of limitations did not apply to bar its claim because the “adverse affect” of the challenged rule did not occur until 2018.

A North Dakota federal district court dismissed the case as untimely because the six-year statute of limitations expired in 2017. The U.S. Court of Appeals for the Eighth Circuit affirmed, holding that the six-year statute of limitations for facial challenges to regulations brought under the APA accrues upon publication of the final rule. In this ruling, the Eighth Circuit followed the majority position that the APA claims first accrued upon publication of the final agency action. Corner Post, Inc. filed a petition for certiorari, which was granted, and the case is now before the Supreme Court.

IMPLICATIONS

The Supreme Court heard oral arguments in the case on February 20, 2024. The precise question before the Court is whether a facial challenge to a regulation, brought under the APA, accrues when the regulation is first published or when the plaintiff first suffers a related “legal wrong” or an “adverse affect.” At oral arguments, the Justices questioned Corner Post’s position. In particular, Justice Ketanji Brown Jackson seemed concerned that a ruling favoring Corner Post would put every agency rule in effect in question, subject to facial challenges whenever a regulated entity claims to have first suffered a related harm.

The outcome of this case could have major impacts on the ability of regulated entities to assert facial challenges to regulations under the APA. If the Supreme Court reverses and holds that the statute of limitations accrues when a party is first injured, plaintiffs will be permitted to challenge a regulation—no matter the promulgation date—so long as they commence the cause of action within six years of the initial harm. Such a holding could open floodgates within the judicial system, creating a pathway for parties to challenge long-settled regulations, leading to perennial regulatory instability.

In Conclusion

The decisions in both Jarkesy and Corner Post could significantly affect the executive branch’s ability to enforce statutes and regulations as well as litigants’ options for bringing judicial challenges. In either case, Supreme Court decisions in favor of the petitioners would magnify the effect of other decisions that may alter how courts approach administrative law questions, such as the pending decisions regarding Chevron deference.

A ruling in favor of the petitioner in Jarkesy could unravel a complex system of administrative adjudication and expedite a litigant’s access to the crowded federal courts. A ruling in favor of the petitioner in Corner Post could change how courts apply the statute of limitations for APA challenges to agency actions and open the door to such claims years, or even decades, after regulations are published. Such rulings would eliminate long-standing obstacles in the path to federal court.

Furthermore, if the Supreme Court strikes down or limits Chevron deference, vastly different criteria would apply when federal courts review agency actions. This combined impact of the three cases could potentially mark a revolution in administrative law litigation, with the landscape fundamentally altered to provide regulated entities more opportunities to challenge agency action in federal court, freed, to some extent, from the agency-favorable doctrine of Chevron deference, allowing the judiciary more opportunity to shape agency action.

Coming Soon in our Litigation Look Ahead Series…

In our 2024 Litigation Look Ahead series, we highlight cases – environmental and otherwise – that could have notable impacts on the regulated community or lead to changed regulatory approaches. Upcoming installments of the series will examine Fifth Amendment takings, the Commerce Clause, the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), and natural resource law. In case you missed it, read part two of the series covering the increased application of the major questions doctrine.

Road to Victory Just Got a Little Easier for Whistleblowers

In 2017, a federal jury found whistleblower Trevor Murray was wrongfully terminated after he refused “to change his research on commercial mortgage-backed securities.” He won over $900,000. On appeal in 2022, the U.S. Court of Appeals for the Second Circuit overturned Murray’s award, finding whistleblowers who bring a retaliation claim against their employer under the Sarbanes-Oxley Act (SOX) must prove their employer acted with “retaliatory intent.”

Earlier this month, the U.S. Supreme Court weighed in, issuing a unanimous decision in Trevor Murray v. UBS Securities LLC, et al. The justices found that the Second Circuit was wrong. That is, “when it comes to a plaintiff’s burden of proof on intent under SOX, they only need to show that their protected activity contributed to an unfavorable personnel action, such as a firing.” Once the plaintiff does this, the Supreme Court found the burden of proof shifts to the employer to prove that “it would have taken the same adverse action regardless of the employee’s protected activity.” The justices found the law is intended ”to be plaintiff-friendly.”

In light of this development, employers should continue to be diligent in documenting the reasons that lead to an employee’s termination. This is especially true if that employee may be found to have engaged in a protected activity, cloaking them with certain whistleblower protections.

In siding with whistleblower Trevor Murray, the justices rejected UBS’ position that a separate finding of retaliatory intent is required for whistleblower protection under the Sarbanes-Oxley Act, or SOX, which governs corporate financial reporting and recordkeeping.

Striking a Balance: The Supreme Court and the Future of Chevron Deference

In its frequent attempts to enforce the separation of powers that the Constitution’s framers devised as a system of checks and balances among the executive, legislative, and judicial branches of the federal government, it is often the so-called “Fourth Branch”—that includes the varied administrative agencies—that is at the heart of things.[1]

These agencies possess a level of technical and scientific expertise that the federal courts generally lack. And, without reference to expertise, Congress often leaves it to agencies and the courts to interpret and apply statutes left intentionally vague or ambiguous as the product of the legislative compromise required to gain passage. This phenomenon begs the question of the extent to which the federal courts may defer to administrative agencies in interpreting such statutes, or whether such deference abnegates the judicial prerogative of saying what the law is. Having passed on several opportunities to revisit this question, the Supreme Court of the United States has finally done so.

In what potentially will lead to a decision that might substantially change the face of federal administrative law generally while voiding an untold number of agency regulations, the Supreme Court, on January 17, 2024, heard oral argument in a pair of appeals, Loper Bright Enterprises, et al., v. Raimondo, No. 22-451, and Relentless, Inc., et al. v. Department of Commerce, No. 22-1219, focusing on whether the Court should overrule or limit its seminal decision in Chevron U.S.A., Inc. v. Natural Resources Defense CouncilInc., 467 U.S. 837 (1984).

Almost 40 years ago, the Chevron decision articulated the doctrine commonly known as “Chevron deference,” which involves a two-part test for determining when a judicial determination must be deferential to the interpretation of a statute. The first element requires determining what Congress has spoken directly to the specific issue in question, and the second is “whether the agency’s answer is based on a permissible construction of the statute.”

Among the most cited Supreme Court cases, Chevron has become increasingly controversial, especially within the conservative wing of the Court, with several Justices having suggested that the doctrine has led to the usurpation of the essential function of the judiciary.

Chevron deference affects a wide range of federal regulations, and the Court’s ruling, whether or not Chevron is retained in some form, is likely to result in significant changes to how agencies may implement statutes and how parties affected by regulations may seek relief from the impact of those regulations. Interestingly, commentators on the recent oral argument in the case are widely divided in their predictions as to the outcome—some suggesting that the conservative majority of the Court will overrule Chevron outright, others suggesting that the Court has no intention at all to do so.

Based on remarks made during the oral arguments by Justice Gorsuch, and by Justices Amy Coney Barrett and Elena Kagan, as well as Justice Kagan’s fashioning of a majority that clarified a related interpretive rule in an earlier case focusing on agencies’ authority to interpret their own regulations, we suggest that there is a substantial possibility that the Court will take a moderate path by strengthening judicial scrutiny at the “Step One” level while recognizing that there are technical and scientific matters as to which courts have no expertise. At the same time, the Court may make it clear that, essentially, legal issues are within its prerogatives and are not subject to agency interpretation.

We examine how the Court might find a path to a better balancing of agency and judicial functions that is consistent with and builds upon other recent rulings involving the review of actions taken by administrative agencies. Whatever the outcome, the Court’s ruling in these cases will have a profound impact on individuals and entities that are regulated by federal agencies or that depend on participation in government programs, such as Medicare and Social Security.

Chevron Refresher

Most law students and lawyers have some familiarity with the touchstone for judicial review of agency rules that was articulated in Chevron, a case that dealt with regulations published by the Environmental Protection Agency to implement a part of the Clean Air Act.[2] The Supreme Court explained that judicial review of an agency’s final rule should be based on the two-part inquiry that we mentioned earlier. First, the reviewing court should determine whether Congress made its intent unambiguously clear in the text of the statute; if so, the inquiry ends, and both the agency and the reviewing court must give effect to Congress’s intent. This has become known by the shorthand phrase “Step One.”

If Congress’s intent is not clear, either because it did not address a specific point or used ambiguous language, then the court should defer to the agency’s construction if it is based on a permissible reading of the underlying statute. This has become known as “Step Two.”

In applying Step Two, a reviewing court should determine if the gap left by Congress was explicit or implicit. If the ambiguity is explicit, then the agency’s regulations should be upheld unless they are arbitrary, capricious, or contrary to the statute.[3] If the ambiguity is implicit, then the “court may not substitute its own construction of a statutory provision for a reasonable interpretation made by the administrator of an agency.”[4]

Chevron deference is not a blank slate for courts to find ambiguity. It recognized that the judiciary “is the final authority on issues of statutory construction” and instructed that in applying Step One, judges are expected to apply the “traditional tools of statutory construction.”[5] It also recognized that any deference analysis should fit within the balance among the branches of government. The Supreme Court explained that while Congress sets an overall policy, it may not reach specific details in explaining how that policy is to be executed in particular contexts. In these situations, the executive branch may have the necessary technical expertise to fill in the details, as it is charged with administering the policy enacted into law. The Court noted that the judiciary was not the ideal entity to fill in any gaps left in legislation because “[j]udges are not experts in the field” and that courts are not political entities. As a result, agencies with expertise are better suited to carry out those policies. Moreover, even if agencies are not accountable to the public, they are part of the executive branch headed by the President, who (unlike judges with life tenure) is directly accountable to the electorate.[6]

Nevertheless, during the recent oral arguments, the Chief Justice stated that the Court had not in recent years employed Chevron itself in its analysis of agency action. The reason why the issue of whether Chevron unduly intrudes upon the judicial function, and whether it should be overruled or modified, relates to the fact that it is widely used in lower court review of administrative actions. Its reconsideration also relates to increasing jurisprudential conservatism on the Supreme Court and the application of originalism and, more widely, textualism.

The Chevron concept of deference to agency regulations exists alongside a line of cases in which courts have deferred to an agency’s interpretations of its own regulations. In both Bowles v. Seminole Rock & Sand Co.[7] and Auer v. Robbins,[8] the Supreme Court developed the principle that courts are not supposed to substitute their preference for how a regulation should be interpreted; instead, a court should give “controlling weight” to that interpretation unless it is “plainly erroneous or inconsistent with the regulation.”[9] Nevertheless, the Court has refused to extend that form of deference to subregulatory guidelines and manuals where there is little or no evidence of a formal process intended to implement Congress’s expressed intent.[10]

The Chevron framework has generated criticism, including statements by several current Justices. Their position relies on an argument that Chevron distorts the balance of authority in favor of the executive and strips courts of their proper role. In a recent dissent from a denial of certiorari, Justice Gorsuch complained that Chevron creates a bias in favor of the federal government and that instead of having a neutral judge determine rights and responsibilities, “we outsource our interpretive responsibilities. Rather than say what the law is, we tell those who come before us to go ask a bureaucrat.”[11] Justice Thomas has written that the Administrative Procedure Act does not require deference to agency determinations and raises constitutional concerns because it undercuts the “obligation to provide a judicial check on the other branches, and it subjects regulated parties to precisely the abuses that the Framers sought to prevent.”[12]

Chevron and the Herring Fishermen

The dispute that has brought Chevron deference to the Supreme Court in 2024 starts with the business of commercial fishing for herring. The National Marine Fisheries Service (NMFS) published a regulation in 2020 that requires operators of certain fishing vessels to pay the cost of observers who work on board those vessels to ensure compliance with that agency’s rules under the Magnuson-Stevens Fishery Conservation and Management Act of 1976 (“Act”). Several commercial fishing operators challenged the regulations, which led to two decisions by the U.S. Courts of Appeals for the District of Columbia Circuit and the First Circuit. Both courts upheld the regulations, but on slightly different grounds. In the first decision, Loper Bright Enterprises, Inc. v. Raimondo,[13] the District of Columbia Circuit followed the traditional Chevron analysis and concluded that the Act did not expressly address who would bear the cost of the monitors. The NMFS’s interpretation of the statute in the regulation was found to be reasonable under Step Two of Chevron based on the finding that the agency was acting within the scope of a broad delegation of authority to the agency to further the Act’s conservation and management goals, and on the established precedent concluding that the cost of compliance with a regulation is typically borne by the regulated party.

The second decision by the First Circuit, Relentless, Inc. v. United States Department of Commerce,[14] took a slightly different approach. That court focused on the text of the Act and concluded that the agency’s interpretation was permissible. It did not anchor its decision in a Chevron analysis and stated that “[w]e need not decide whether we classify this conclusion as a product of Chevron step one or step two.”[15] The First Circuit also emphasized that the operators’ arguments did not overcome the presumption that regulated entities must bear the cost of compliance with a relevant statute or regulation.

The parties have staked out starkly different views of Chevron’s legitimacy and whether it is compatible with the separation of powers in the U.S. Constitution. The fishermen petitioners argue that Chevron is not entitled to respect as precedent because the two-part test was only an interpretive methodology and not the holding construing the Clean Air Act. Their core argument is that Chevron improperly and unconstitutionally shifts power to the executive branch by giving more weight to the agencies in rulemaking and in resolving disputes where the agency is a party and shifts power away from the judiciary’s role under Article III to interpret laws and Congress’s legislative authority power under Article I. Taking this one step further, the petitioners argue that this shift violates the due process rights of regulated parties. They also argue that Chevron is unworkable in practice, citing instances where the Supreme Court itself has declined to apply the two-part test and the lack of a consensus as to when a statute is clear or ambiguous, making the application of Chevron inconsistent. Put another way, according to the petitioners, the problem with Chevron is that there is no clear rule spelling out how much ambiguity is needed to trigger deference to an agency’s rule. Next, they argue that Chevron cannot be applied when an underlying statute is silent because this allows agencies to legislate when there is a doubt as to whether Congress delegated that power to the agency at all and that it would run counter to accepted principles of construction that silence can be construed to be a grant of power to an agency. Finally, they contend that Chevron deference to agencies conflicts with Section 706 of the Administrative Procedure Act, where Congress authorized courts to “decide all relevant questions of law, interpret constitutional and statutory provisions, and determine the meaning or applicability of the terms of an agency action.”[16]

The Secretary of Commerce argues that there are multiple reasons to preserve Chevron deference. First, the Secretary argues that Chevron fits within the balance of power between the branches of the federal government. In the Secretary’s view, Chevron deference is consistent with the separation of powers doctrine, as it respects (1) Congress’s authority to legislate and to delegate authority to an administrative agency, (2) the agency’s application of its expertise in areas that may be complex, and (3) the judiciary’s authority to resolve disputed questions of law. Therefore, the Chevron framework avoids situations where courts may function like super-legislatures in deciding how a statute should be implemented or administered and second-guess policy decisions.

According to the Secretary, courts know how to apply the traditional tools of statutory interpretation, and if an ambiguity exists after that exercise is complete, it is appropriate to defer to an administrative agency that has technical or scientific experience with the subject matter being regulated. In addition, the Secretary contends that Chevron promotes consistency in the administration of statutes and avoids a patchwork of court rulings that may make it difficult or impossible to administer a nationwide program, such as Social Security or Medicare. Third, the Secretary notes that Chevron is a doctrine that has been workable for 40 years and that over those decades, Congress has not altered or overridden its holding, even as it has enacted thousands of statutes since 1984 that either require rulemaking or have gaps that have been filled by rulemaking. As a result, the Secretary argues that there are settled interpretations that agencies and regulated parties rely on, and overruling Chevron would lead to instability and relitigating settled cases. Finally, the Secretary argues that Chevron deference cannot be limited to interpretations of ambiguous language alone, as there are no accepted criteria for distinguishing ambiguous statutory language from statutory silence.

The Oral Argument

The Supreme Court heard arguments in both cases on January 17, 2024. Over more than three hours of argument, the Justices focused on several questions. Justices Kagan, Sotomayor, and Jackson expressed concerns that abandoning the Chevron framework would put courts in the position of making policy rather than just ruling on questions of law. In their view, courts lack the skills and expertise to craft policy and should not act as super-legislators. They also stressed that there are situations in which the tools of statutory construction do not yield a single answer or that Congress has not addressed the question either because it left some matters unresolved in the statute or through other subsequent changes not contemplated by Congress, such as the adoption of new technologies. In these cases, the Justices wanted to know why deference to an agency was not appropriate and did not see any clear indication that Congress intended that courts, not agencies, should make determinations when the statutory language is ambiguous or silent. They also questioned why the Supreme Court should overrule Chevron when Congress has been fully aware of the decision for 40 years and has not enacted legislation to eliminate the ability of a court to defer to an agency’s determinations.

The members of the more conservative wing of the Supreme Court questioned counsel about weaknesses in the Chevron framework. Justice Gorsuch returned to his earlier criticism of Chevron and asked the parties to define what constitutes enough ambiguity to allow a court to move from Step One to Step Two. He further questioned whether there was sufficient evidence that Congress ever intended to give the government the benefit of the doubt when an individual or regulated entity challenges agency action. Justice Gorsuch, along with Justices Thomas and Kavanaugh, asked whether Chevron actually resulted in greater instability and whether it was appropriate to abandon Chevron in favor of the lesser form of deference articulated in Skidmore v. Swift & Co., where deference is not a default outcome and a court is supposed to exercise its independent judgment to give weight to agency determinations based on factors including the thoroughness of the agency’s analysis, the consistency and validity of the agency’s position, and the agency’s “consistency with earlier and later pronouncements, and all those factors which give it power to persuade.”[17] The follow-up questions asked whether it was correct to accord deference to agency regulations when the agency’s policy can shift from administration to administration.

Where Is the Conservative Court Likely to Go?

The length of the argument and the alacrity of questioning do not mean that the Supreme Court is going to overrule the 40-year-old, highly influential Chevron doctrine. It is, however, quite likely that the doctrine will be narrowed and clarified. To say nothing of the recent oral argument, several recent decisions evidence a reluctance to abandon deference altogether. In a pair of decisions issued in 2022 involving Medicare reimbursement to hospitals, the Court resolved deference questions by relying on the statutory text alone.

Those decisions involved challenges to a Medicare regulation governing hospital reimbursement, and a published interpretation of a section of the Medicare statute governing reimbursement for outpatient drugs. Although the Court ruled in the government’s favor in the former case and against the government in the latter case, neither decision relies on Chevron—even though in one case, the petitioner’s counsel expressly asked the Court to overrule Chevron during the oral argument.[18] Yet, by relying on the text of each statute to resolve a regulatory dispute, the Court’s reasoning in both decisions is consistent with Step One of the Chevron test and demonstrates that it is workable in practice and need not result in a dilution of judicial review. In addition, the Court has developed another limit to agency action in its decisions, finding that when a regulatory issue presents a “major question,” deference is irrelevant unless the agency can show that Congress expressed a clear intent that the agency exercise its regulatory authority. This concept remains a work in progress because the Court has not defined criteria that make an issue a major question.[19]

These cases provide a useful background to an increasingly jurisprudentially conservative, textually oriented Court. Two cases that were specifically discussed during oral argument are particularly significant in plotting the Court’s landing place with regard to Chevron. Justice Gorsuch made multiple references to Skidmore, which sets forth the principle that a federal agency’s determination is entitled to judicial respect if the determination is authorized by statute and made based on the agency’s experience and informed judgment. Unlike the Chevron standard, the Skidmore standard considers an agency’s consistency in interpreting a law it administers.

The second, and more recent, precedent that is even more likely to guide the narrowing of Chevron is Kisor v. Wilkie.[20] There, a 5-4 divided Court adopted a multi-stage regime for reviewing an agency’s reliance upon arguably ambiguous regulations that is roughly analogous to Chevron’s two-stage analytical modality. In doing so, it modified, but did not overrule, Auer v. Robbins, 519 U.S. 452 (1997), and its doctrinal predecessor, Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945), which permit a court to defer to an agency’s interpretation of its own ambiguous regulation, so long as that interpretation is reasonable, even if the court believes another reasonable reading of the regulation is the better reading.

Kisor saw a mixed bag of Justices joining, or dissenting from, various parts of the Kagan opinion. What made the majority as to its operative section was the Chief Justice’s joining Justice Ginsburg, Breyer, and Sotomayor. With Justice Ginsburg having been succeeded by Justice Barrett, and Justice Breyer having been succeeded by Justice Jackson, one might hypothesize that there now would be a conservative 5-4 majority that would have overruled Auer. However, it was Justice Barrett who raised the possibility of “Kisorizing” Chevron, a suggestion quickly adopted by Justice Kagan. Justice Gorsuch, a longtime opponent of Chevron, is likely amenable to a Skidmore-oriented result.

The Kagan opinion cabins and arguably lowers the level of deference an agency’s interpretation of a rule should receive. Thus, with a strong nod to the Court’s jurisprudential drift to the right, Justice Kagan begins with the truism that whatever discretion an agency might claim, the Court’s analysis must proceed under the proposition that an unambiguous rule must be applied precisely as its text is written. It is not unlikely that, if the Court narrows Chevron (as we predict it shall), it also will begin with a more robust requirement to apply the statutory text in Step One and re-emphasize the need to exhaust all of the tools of statutory construction; in other words, there is no need for deference unless there is genuine ambiguity. If an agency’s determination is to become relevant, it only becomes so after ambiguity is established.[21]

In short, if the law gives a definitive answer on its face, there is nothing to which a court should defer, even if the agency argues that there is an interpretation that produces a better, more reasonable result. This is a textual determination that addresses the criticism of the so-called Administrative State’s acting as a quasi-legislature to which the Court yields its own power to say what the law is.

However, even a reasonable agency interpretation, the Kagan opinion notes, might not be dispositive. The opinion must be the agency’s official position, not one ginned up for litigation purposes, and it must reflect the agency’s particular expertise.

­Conclusion

In its 40-year life, Chevron deference has been at the heart of the application of federal administrative law. No case among all of the many governmental functions that the Supreme Court considers has been more widely cited, and no administrative law case has been more controversial, especially among jurisprudential conservatives. While asked by various parties to do so, the Court has declined, and the Chevron structure has been applied, often inconsistently, by federal courts. Perhaps reflecting the increasingly conservative direction of the Court, we have reached a point where the Court will consider retiring this long-standing precedent or, alternatively, refreshing it based on the experience of courts and agencies since 1984.

Justice Kagan’s analytic method in Kisor v. Wilkie could also apply to tightening Chevron. In her decisions, she has exhibited great fidelity to reading text literally, avoiding the perils of legislation from the bench. As she wrote in Kisor:

[B]efore concluding that a rule is genuinely ambiguous, a court must exhaust all the traditional tools of construction. . . . For again, only when that legal toolkit is empty and the interpretive question still has no single right answer can a judge conclude that it is more one of policy than of law. That means a court cannot wave the ambiguity flag just because it found the regulation impenetrable on first read. Agency regulations can sometimes make the eyes glaze over. But hard interpretive conundrums, even relating to complex rules, can often be solved. A regulation is not ambiguous merely because discerning the only possible interpretation requires a taxing inquiry. To make that effort, a court must carefully consider the text, structure, history, and purpose of a regulation, in all the ways it would if it had no agency to fall back on. . . . Doing so will resolve many seeming ambiguities out of the box, without resort to . . . deference” (citations and internal punctuation omitted).[22]

Text alone might not provide the answer in every case, as Justice Kagan recognizes as she outlines four additional steps that might lead to judicial deference to agency statutory interpretations. However, to the extent that a majority of the Court elects to retain Chevron, though narrowing it, her approach in the analogous setting reflected in Kisor would be effective in resolving the two cases now at bar—recognizing agency expertise in technical and scientific matters beyond the competency of the judiciary while preserving the function of the courts to determine what the legislature actually wrote, not to write it themselves.

* * * *

ENDNOTES

[1] Besides the administrative bureaucracy, various jurists and commentators have, under this rubric, included the press, the people acting through grand juries, and interest or pressure groups. Those institutions represent the arguable influence of extra-governmental sources. We are focused here on the level of judicial deference afforded to federal administrative agencies.

[2] 467 U.S. at 842-43.

[3] 5 U.S.C. § 706(2)(A).

[4] Id. at 844.

[5] Id. at 843, fn.9.

[6] Id. at 865-66.

[7] 325 U.S. 410, 414 (1945).

[8] 519 U.S. 452, 461 (1997).

[9] Id.

[10] United States v. Mead Corp., 533 U.S. 218, 229 (2001); Christensen v. Harris County, 529 U.S. 576 (2000).

[11] Buffington v. McDonough, No. 21-972 (Gorsuch, J., dissenting at 9) (2022).

[12] Perez v. Mortgage Bankers Ass’n, 135 S.Ct. 1199,1213 (2015) (Thomas, J., concurring in the judgment).

[13] 45 F.4th 359 (D.C. Cir. 2022).

[14] 62 F.4th 621 (1st Cir. 2023).

[15] Id. at 634.

[16] 5 U.S.C. § 706.

[17] 323 U.S. 134, 140 (1944).

[18] Becerra v. Empire Health Foundation, 142 S.Ct. 2354 (2022), and American Hospital Ass’n v. Becerra, 142 S.Ct. 1896 (2022). The request to overrule Chevron appears in the transcript of the American Hospital Ass’n oral argument, at 30.

[19] West Virginia v. EPA, 142 S.Ct. 2587 (2022); Utility Air Regulatory Group v. EPA, 573 U.S. 302, 324 (2014).

[20] 139 S. Ct. 2400 (2019).

[21] Kisor predicated deference, if at all, upon five preliminary stages. First, as noted, the reviewing court should determine that a genuine ambiguity exists after applying all of the tools of statutory construction. This is consistent with Step One of Chevron, but Justice Kagan makes it clear that this is a heightened textual barrier. Second, the agency’s construction of the regulation must be “reasonable”; this is a restatement of Step Two of Chevron. The Court cautioned that an agency can fail at this step. Third, the agency’s construction must be “the agency’s ‘authoritative’ or ‘official position,’” which was explained as an interpretation that is authorized by the agency’s head or those in a position to formulate authoritative policy. Fourth, the regulatory interpretation must implicate the agency’s “substantive expertise.” Finally, the regulatory interpretation must reflect the agency’s “fair and considered judgment” and that a court should decline to defer to a merely “convenient litigating position” or “post hoc rationalizatio[n] advanced” to “defend past agency action against attack.”

[22] 139 S.Ct. at 2415.

Supreme Court Upholds Corporate Whistleblower Protections in Landmark Ruling

Today, the U.S. Supreme Court issued a unanimous ruling holding that whistleblowers do not need to prove that their employer acted with “retaliatory intent” to be protected under the Sarbanes-Oxley Act (SOX). The decision in the case, Murray v. UBS Securities, LLC, has immense implications for a number of whistleblower protection laws.

“This is a major win for whistleblowers and thus a huge win for corporate accountability,” said leading whistleblower attorney David Colapinto, a founding partner of Kohn, Kohn & Colapinto.

“A ruling in favor of UBS would have overturned more than 20 years of precedent in SOX whistleblower cases and made it exceedingly more difficult for whistleblowers who claim retaliation under many similarly worded federal whistleblower statutes,” Colapinto continued.

“Thankfully, the Court was not swayed by UBS’ attempt to ignore the plain meaning of the statute and instead upheld the burden of proof that Congress enacted to protect whistleblowers who face retaliation,” added Colapinto.

In an amicus curiae brief filed in the case on behalf of the National Whistleblower Center, the founding partners of Kohn, Kohn & Colapinto outlined the Congressional intent behind the burden of proof standard in SOX.

“In crafting the unique ‘contributing factor’ test for whistleblowers, Congress left an incredibly straight-forward legislative history documenting the value of whistleblowers’ contributions, the risks and retaliation whistleblowers faced, the barriers the previous burden of proof presented for whistleblowers, and Congress’ explicit intention to lower that burden of proof for whistleblowers,” the brief states.

In the Court’s opinion, Justice Sonia Sotomayor likewise pointed to the Congressional intent of SOX’s contributing-factor burden of proof standard:

“To be sure, the contributing-factor framework that Congress chose here is not as protective of employers as a motivating-factor framework. That is by design. Congress has employed the contributing-factor framework in contexts where the health, safety, or well-being of the public may well depend on whistleblowers feeling empowered to come forward. This Court cannot override that policy choice by giving employers more protection than the statute itself provides.”

This article was authored by Geoff Schweller.

Year in Review: The Most Popular IP Posts of 2023

As 2024 begins and intellectual property (IP) strategies are being developed for the new year, it is a good time to reflect on what IP issues were prominent in 2023. According to many readers, hot IP topics included patent litigation strategies, artificial intelligence (AI), and pharmaceutical-related patent applications.

  1. An Overview of Shotgun Pleadings in the Federal Courts– This article explores types of shotgun pleadings identified by courts and outlines potential responses to a shotgun pleading.
  2. Lensa: Are AI Art Generators Copyright Infringers?– The ability of an AI tool, such as Lensa, to create near-replicas of other artists’ works leads to the question of whether AI-generated art can be considered derivative of other artworks. This article explores the answer to this question.
  3. Supreme Court Unanimously Affirms Amgen Repatha® Antibody Patents Invalid for Lack of Enablement– In their May 2023 decision in Amgen v. Sanofi, the U.S. Supreme Court held claims of patents, directed to a genus of potentially millions of antibodies, to be invalid because the patents failed to sufficiently enable one skilled in the art to make and use the full scope of the claimed inventions as required by 35 U.S.C. §112(a). This article explains the decision and its possible effect going forward.
  4. Why Pharma Companies Should File Patents Later In The R&D Process – This article discusses clinical trial related patent applications and best practices for maximizing patent term while minimizing risk of invalidation by public use.
  5. Federal Circuit Resolves District Court Split, Holds Foreign Defendant Cannot Defeat Rule 4(k)(2) Personal Jurisdiction by Unilateral Post-suit Consent to Jurisdiction in Alternative Forum – This article provides provide additional context regarding the Federal Circuit’s January 2023 decision in In re Stingray IP Solutions, LLC.

2023 Key Developments In The False Claims Act

2023 was another active year for the False Claims Act (FCA), marked by notable appellate decisions, emerging enforcement trends, and statutory amendments to state FCAs. We summarize the year’s most important developments for practitioners and government-facing businesses.

Developments in Caselaw

Supreme Court Holds That FCA Scienter Incorporates A Subjective Standard

The Supreme Court issued two consequential decisions on the False Claims Act this term. In the first, United States ex rel. Schutte v. SuperValu Co., 1 the Court held that objectively reasonable interpretations of ambiguous laws and regulations only provide a defense to the FCA’s scienter requirement if the defendant in fact interpreted the law or regulation that way during the relevant period. The Court held that the proper scienter inquiry is whether the defendant was “conscious of a substantial and unjustifiable risk” that their conduct was unlawful. 2 Previously, some courts (including the courts below in Schutte) had dismissed FCA claims based on an ambiguity in relevant statutory or regulatory provisions identified by a party’s attorneys, even if the party never actually believed that interpretation. Schutte precludes such a defense. That said, Schutte does require relators or the Government to allege facts to support an inference of actual knowledge of falsity, and some courts have granted motions to dismiss on that basis post-Schutte. 3

High Court Reaffirms Government’s Authority To Intervene And Dismiss Declined Actions, While Some Justices Raise Constitutional Questions

The Court also decided United States ex rel. Polansky v. Executive Health Resources, Inc., 4 which held that the Government may intervene in a declined action—i.e., where the Government declines to litigate the case at the outset under 31 U.S.C. § 3730(b)(4)(B)—for the purpose of dismissing it over the relator’s objection. The case essentially preserves the status quo, as courts widely recognized the authority of the Government to dismiss declined qui tams before PolanskyPolansky places two minor restrictions on the Government’s ability to dismiss declined actions. First, the Government has to intervene. 5 Second, the Government needs to articulate some rationale for dismissal to meet the standard of Rule 41(a), which the Court remarked that it will be able to do in “all but the most exceptional cases.” 6 More notably, however, three of the nine Justices (Justice Thomas in dissent and Justices Kavanaugh and Barrett in concurrence) signaled that they would entertain a challenge to the constitutionality of the qui tam mechanism under Article II. 7 Though the one court that has considered such arguments on the merits post-Polansky rejected them, 8 it remains likely that additional, similar challenges will be made.

Split In Authority Deepens On Causation In Kickback Cases

In FCA cases where the relator alleges a violation of the Anti-Kickback Statute (AKS), the payment of a kickback needs—at least in part—to have caused a submission of a false claim. That requirement flows from the statutory text of the AKS, which provides that claims “resulting from” AKS violations are “false or fraudulent claim[s]” for the purpose of the FCA. 9 But courts have not coalesced around a single standard for what it means for a false claim to “result from” a kickback. Before this year, the Third Circuit in United States ex rel. Greenfield v. Medco Health held that there needs to be “some link” between kickback and referral beyond temporal proximity. 10 On the other hand, the Eighth Circuit in United States ex rel. Cairns v. D.S. Medical, LLC, held that the kickback needs to be a but-for cause of the referral. 11 Earlier this year, the Sixth Circuit endorsed the Eighth Circuit’s interpretation of causation. The court reasoned that but-for causation is the “ordinary meaning” of “resulting from” and no other statutory language in the AKS or FCA justifies departure from a but-for standard. 12 But not every court has adopted the Sixth Circuit’s straightforward analysis.

In the District of Massachusetts, for example, two decisions issued this summer came out on opposite sides of the split. In both cases, United States v. Teva Pharmaceuticals USA, Inc., 13 and United States v. Regeneron Pharmaceuticals, Inc., 14 the Government alleged that the pharmaceutical companies were improperly paying copayment subsidies to patients for their drugs. Yet Teva adopted Greenfield’s “some link” standard, while Regeneron adopted the “but-for” standard of the Sixth and Eighth Circuits. The Teva court also certified an interlocutory appeal to the First Circuit to resolve the issue prior to trial, which remains pending. 15 FCA defendants in cases arising out of the AKS thus continue to face substantial uncertainty as to the applicable standard outside the Third, Sixth, and Eighth Circuits. That said, there is mounting skepticism of the Greenfield analysis, 16 and those defendants retain good arguments that the standard adopted by the Sixth and Eighth Circuits should apply.

Enforcement Trends

The also Government remained active in investigating and, in many cases, settling False Claims Act allegations. That enforcement activity included several large settlements, including a $377 million settlement with Booz Allen Hamilton arising out of its failure to comply with Federal Acquisition Regulation cost accounting standards. 17 Our review of this year’s activity revealed significant trends in both civil and criminal enforcement, which we briefly describe below.

Focus On Unsupported Coding In Medicare Advantage (Part C) Claims

Medicare recipients are increasingly turning to private insurers to manage the administration of their Medicare benefits: over half of Medicare enrollees now opt for managed care plans. 18 The Government announced several important enforcement actions focused on submissions to and the administration of Medicare Advantage plans.

On September 30, DOJ announced a $172 million settlement with Cigna due to an alleged scheme to submit unsupported Medicare coding to increase reimbursement rates. According to the press release, Cigna operated a “chart review” team that reviewed providers’ submitted materials and identified additional applicable diagnosis coding to include on requests for payment. The Government alleges that some of the coding Cigna added was not substantiated by the chart review. 19

Similarly, in October, the Government declined to prosecute insurer HealthSun for submitting diagnosis coding to CMS that increased applicable reimbursement rate of treatment without an actual underlying diagnosis by the treating physician. The declination was based on HealthSun’s voluntary self-disclosure of the conduct through the Criminal Division’s recently updated Corporate Enforcement and Voluntary Self-Disclosure Policy. 20 DOJ did, however, indict the company’s former Director of Medicare Risk Adjustment Analytics for conspiracy to commit healthcare fraud and several counts of wire fraud and major fraud against the Government in the Southern District of Florida. 21

In May, the United States Attorney’s Office for the Eastern District of Pennsylvania announced a settlement against a Philadelphia primary care practice based on the submission of allegedly unsupported Medicare diagnosis coding in Part C submissions. The press release asserts that the practice coded numerous claims with morbid obesity diagnoses when the patients lacked the required body-mass index for the diagnosis and diagnosed chronic obstructive pulmonary disease without appropriate substantiation. 22

Both managed care organizations and providers that submit claims to Medicare Advantage should review their claim coding practices to ensure that their claims accurately reflect the medical diagnoses of the treating physician, as well as the treatment provided.

DOJ Follows Through On Civil Cyber-Fraud Initiative

In 2021, DOJ announced the launch of its Civil Cyber-Fraud Initiative, 23 which was aimed at policing government contractors’ failures to adequately protect government information by meeting prescribed cybersecurity requirements. This year, the enforcement of that policy led the Government to alleged FCA violations based on implied or explicit certifications of compliance with cybersecurity regulations:

In September, the Government declined to intervene in a qui tam action against Pennsylvania State University alleging that Penn State falsely certified compliance with Defense Federal Acquisition Regulation Supplement 252.204-7012, which specifies controls required to safeguard defense-related information, during the length of its contract with the Defense Department. 24 However, the parties subsequently sought a 180 day stay of proceedings due to an ongoing government investigation, which was granted. 25 The application for the stay hinted that the Government may yet intervene in the action and file a superseding complaint. 26

DOJ also announced in September a $4 million settlement with Verizon Business Network Services LLC arising out of Verizon’s provision of internet services to federal agencies that was required to meet specific security standards. The Government’s press release, which specifically noted Verizon’s cooperation with the investigation, alleged that Verizon failed to implement “three required cybersecurity controls” in its provision of internet service, which were not individually specified. 27

Entities doing business with the Government should ensure that they are aware of all applicable cybersecurity laws and regulations governing that relationship and that they are meeting all such requirements.

Continued Crackdown On Telemedicine Fraud Schemes

Following OIG-HHS’s July 2022 Special Fraud Alert 28 regarding the recruitment of practitioners to prescribe treatment based on little to no patient interaction over telemedicine, DOJ announced several significant settlements involving that exact conduct. In many circumstances, the Government pursued criminal charges rather than civil FCA penalties alone.

In September, the United States Attorney’s Office for the District of Massachusetts announced a guilty plea to a conspiracy to commit health care fraud charge. The Government alleged that the defendant partnered with telemarketing companies to pay Medicare beneficiaries “on a per-order basis to generate orders for [durable medical equipment] and genetic testing,” and then found doctors willing to sign “prepopulated orders” based on telemedicine appointments that the doctors did not actually attend. 29

In June, as part of a “strategically coordinated” national enforcement action, DOJ announced action against several officers of a south Florida telemedicine company for an alleged $2 billion fraud involving the prescription of orthotic braces and other items to targeted Medicare recipients through cursory telemarketing appointments that were presented as in-person examinations. 30

Although enforcement in the telemedicine space to date has largely focused on obviously fraudulent conduct, practitioners should be aware that the Government may view overly short telemedicine appointments as insufficient to support diagnoses leading to claims for payment from the Government.

State False Claims Acts

Both Connecticut and New York made notable alterations to the scope of conduct covered by their state FCAs. Companies doing business with state governments should be aware that 32 states have their own FCAs, not all of which mirror the federal FCA.

Connecticut Expands FCA To Mirror Scope Of Federal Statute

Prior to this year, Connecticut’s False Claims Act covered only payments sought or received from a “stateadministered health or human services program” In June, however, Connecticut enacted a substantial revision to its state FCA, which seeks to mirror the scope and extent of the Federal FCA. 31 Those doing business with the state of Connecticut should conduct an FCA-focused compliance review of that business to avoid potential liability arising out of state law, and should also understand federal FCA jurisprudence, which is likely to have a significant influence on the new law’s interpretation.

New York Expands FCA To Cover Allow Tax-Related FCA Claims Against Non-Filers

New York is among the few states whose state FCAs cover tax-related claims. Prior to this year, though, the state and its municipalities could only assert tax-related claims against those who actually filed and whose filings contained false statements of fact. In May, New York amended its FCA to allow a cause of action against those who knowingly fail to file a New York tax return and pay New York taxes. 32 Companies doing business in New York should be aware that not filing required taxes in New York may potentially subject them to, among other things, the treble damages for which the FCA provides.

1 143 S. Ct. 1391 (2023).
Schutte, 143 S. Ct. at 1400-01.
See, e.g., United States ex rel. McSherry v. SLSCO, L.P., No. 18-CV-5981, 2023 WL 6050202,
at *4 (E.D.N.Y. Sept. 15, 2023).
4 143 S. Ct. 1720 (2023).
5 Id. at 1730.
6 Id. at 1734.
7 Id. at 1737 (Kavanaugh, J., concurring); id. at 1741-42 (Thomas, J., dissenting).
8 See United States ex rel. Wallace v. Exactech, Inc., No. 7:18-cv-01010, 2023 WL 8027309, at
*4-6 (N.D. Ala. Nov. 20, 2023).
9 See 42 U.S.C. § 1320a-7b(g).
10 United States ex rel. Greenfield v. Medco Health Sol’ns, 880 F.3d 89, 98-100 (3d Cir. 2018).
11 United States ex rel. Cairns v. D.S. Med., LLC, 42 F. 4th 828, 834-36 (8th Cir. 2022).
12 United States ex rel. Martin v. Hathaway, 63 F. 4th 1043, 1052-53 (6th Cir. 2023).
13 Civ. A. No. 20-11548, 2023 WL 4565105 (D. Mass. July 14, 2023).
14 Civ. A. No. 20-11217, 2023 WL 7016900 (D. Mass. Oct. 25, 2023)
15 See United States v. Teva Pharma USA, Inc., No. 23-1958 (1st Cir. 2023).
16 See, e.g., Regeneron, 2023 WL 7016900, at *11 (remarking that the Greenfield analysis is
“fraught with problems” and “disconnected from long-standing common-law principles of
causation”).
17 https://www.justice.gov/opa/pr/booz-allen-agrees-pay-37745-million-settle-false-claims-act-
allegations.
18 https://www.kff.org/policy-watch/half-of-all-eligible-medicare-beneficiaries-are-now-enrolled-
in-private-medicare-advantage-plans/.
19 https://www.justice.gov/opa/pr/cigna-group-pay-172-million-resolve-false-claims-act-
allegations.
20 See https://www.justice.gov/opa/speech/assistant-attorney-general-kenneth-polite-jr-delivers-
remarks-georgetown-university-law.
21 https://www.justice.gov/opa/pr/former-executive-medicare-advantage-organization-charged-
multimillion-dollar-medicare-fraud.
22 https://www.justice.gov/usao-edpa/pr/primary-care-physicians-pay-15-million-resolve-false-
claims-act-liability-submitting.
23 See https://www.justice.gov/opa/pr/deputy-attorney-general-lisa-o-monaco-announces-new-
civil-cyber-fraud-initiative.
24 See United States ex rel. Decker v. Penn. State Univ., Civ. A. No. 22-3895 (E.D. Pa. 2023).
25 Id. at ECF Nos. 24, 37.
26 Id. at ECF No. 24.

27 See https://www.justice.gov/opa/pr/cooperating-federal-contractor-resolves-liability-alleged-
false-claims-caused-failure-fully.
28 https://oig.hhs.gov/documents/root/1045/sfa-telefraud.pdf.
29 https://www.justice.gov/usao-ma/pr/owner-telemedicine-companies-pleads-guilty-44-million-
medicare-fraud-scheme.
30 https://www.justice.gov/opa/pr/national-enforcement-action-results-78-individuals-charged-
25b-health-care-fraud.
31 See Conn. Gen. Stat. §§ 4-274–4-289.
32 See N.Y. State Fin. Law § 189(4)(a).

U.S. Supreme Court Vacates, Dismisses as Moot Decision Holding ADA ‘Tester’ Has Standing to Sue

The U.S. Supreme Court vacated a decision by the U.S. Court of Appeals for the First Circuit holding a self-appointed “tester” has standing to sue under the Americans With Disabilities Act (ADA). Acheson Hotels, LLC v. LauferNo. 22-429. However, the Court declined to address the merits of whether the tester had a sufficient concrete and particularized injury to establish standing, holding the case had become moot and leaving in place a deep circuit split on the standing issue.

Reservation Rule; Title III

Deborah Laufer had sued Acheson Hotels for alleged violation of the Reservation Rule, a Department of Justice regulation requiring places of lodging to identify and describe accessible features in the hotels and guest rooms offered through their reservations service. The information must have enough details to allow individuals with disabilities to determine whether a given hotel or guest room meets their accessibility needs.

Title III of the ADA requires hotels to make reasonable modifications to reservations policies, practices, or procedures when necessary to ensure that individuals with disabilities can reserve accessible hotel rooms with the same efficiency, immediacy, and convenience as those who do not need accessible guest rooms.

Case of Self-Appointed Tester

As a self-appointed tester, Laufer has sued more than 600 hotels by searching the internet for hotel websites and finding those that lack such accessibility information. Although Laufer has no intention of accessing the hotels she sued, she claims to enforce the law on behalf of other disabled persons.

In response to Laufer’s suits, the hotels argued Laufer lacks standing to bring these lawsuits. Allowing Laufer and other self-appointed testers to sue thousands of hotels across the United States on behalf of every disabled person in the country simply by visiting their websites would cause a flood of litigation from other testers, the hotels warned.

The First Circuit joined the Fourth and Eleventh Circuits to hold that Laufer has standing. In contrast, the Second, Fifth, and Tenth Circuits have held that she lacks standing.

Dismissal Requested

After Acheson Hotels had submitted its merits brief to the Court, but before oral argument, another court sanctioned one of Laufer’s attorneys for misconduct related to some of Laufer’s ADA cases for repeatedly demanding $10,000 in attorneys’ fees after filing boilerplate complaints. Laufer dismissed her lawsuit with prejudice, ostensibly because of that sanction.

Laufer then urged the Supreme Court to dismiss the case on the ground of mootness, arguing “mootness is easy and standing is hard,” so the Court should “refrain from resolving a difficult question in a case that is otherwise over.” Acheson Hotels urged the Court to decide the standing issue, arguing “the standing issue might not come back anytime soon. Acheson Hotels argued, the Court recounted, “While Laufer has disavowed the intention to file any more ADA tester suits, others will file in the circuits that sided with her, and hotels will settle, regarding it as pointless to challenge circuit precedent.” It continued, “‘Why would any hotel take a case this far,’ Acheson asks, ‘if the respondent can evade our review by abandoning a claim rather than risking a loss?’”

Dismissed as Moot

In an 8-1 opinion by Justice Amy Coney Barrett, the Court dismissed the case as moot.

The Court explained, “We are sensitive to Acheson’s concern about litigants manipulating the jurisdiction of this Court. We are not convinced, however, that Laufer abandoned her case in an effort to evade our review.” It continued, “She voluntarily dismissed her pending ADA cases after a lower court sanctioned her lawyer. She represented to this Court that she will not file any others.” Although, the Court said, “Laufer’s case against Acheson is moot, and we dismiss it on that ground, … [w]e emphasize, however, that we might exercise our discretion differently in a future case.”

The Court also vacated the First Circuit’s decision under its practice of “Munsingware vacatur,” meaning the issue is once again open in that circuit.

Dissent

Justice Clarence Thomas filed a lone dissent. He would have reached the standing issue, reasoning “whether Laufer had standing the day she filed her suit is logically antecedent to whether her later actions mooted the case.” Moreover, he continued, “the circumstances strongly suggest strategic behavior on Laufer’s part.” In addition, he wrote, “Laufer’s logic is … that she dismissed her claim—and the Court should no longer address whether she had standing—because an attorney she hired in an entirely different case engaged in misconduct.” According to Justice Thomas, he “would not reward Laufer’s transparent tactic for evading our review.”

Justice Thomas then explained he would have held that Laufer lacked standing. He reasoned, assuming the Reservation Rule creates a right to accessibility information, “Laufer asserts no violation of her own rights with regard to that information.” He continued, “Acheson Hotels’ failure to provide accessibility information on its website is nothing to Laufer, because she disclaimed any intent to visit the hotel.”

Concurrence

In a lone concurrence, Justice Ketanji Brown Jackson explained that, although she agreed that the Court followed its “Munsingware vacatur” precedent, she would instead require a party to show equitable entitlement to such relief.

Takeaway

After Acheson, testers generally lack standing to sue for alleged violation of the Reservation Rule in the Second, Fifth, and Tenth Circuits and have such standing in the Fourth and Eleventh Circuits. The issue is once again open in the First Circuit and remains open in the other circuits. The Supreme Court likely will be called upon again to resolve the circuit split.

Supreme Court Says Case Over ADA ‘Tester’ Standing Is Moot, But Issue is Still Alive

On December 5, 2023, the Supreme Court of the United States vacated a case over whether a self-proclaimed “tester” had standing to bring Americans with Disabilities Act (ADA) claims against a hotel that she did not plan to visit, finding the case was moot without addressing the highly-anticipated standing issue.

Quick Hits

The Supreme Court vacated an ADA case against a hotel by a plaintiff who did not intend to stay at the hotel as moot despite the hopes of the business community that it would reduce the overwhelming number of ADA lawsuits.
The decision did not address whether such a ‘tester’ plaintiff has standing under the ADA except to say the issue is still alive and without providing any indication for how the Supreme Court or any other court will resolve the tester standing issue going forward.
A concurring opinion by Justice Thomas suggested that the plaintiff lacked standing because the only injury she suffered was so-called “informational injury” that is not protected by the ADA.
The Supreme Court vacated Acheson Hotels v. Laufer as moot but said the circuit split over whether “testers” have standing “is very much alive.” The high court further vacated the First Circuit Court of Appeals ruling that the plaintiff, Deborah Laufer, who uses a wheelchair, did have standing to bring ADA claims.

Still, the ruling failed to answer key questions about whether testers, individuals who seek out potential claims for discrimination violations against businesses, have standing to bring such claims amid a legal strategy to barrage businesses with tester lawsuits that often allege mere technical rights violations with a goal of extracting settlement payouts.

Despite once providing hope that the Supreme Court saw the Laufer case as a vehicle for reducing the overwhelming number of ADA lawsuits, including website accessibility lawsuits, when it accepted the case in March 2023, the dismissal of the case as moot does not offer relief for the business community and provides virtually no indication for how this Court (or any other court) will resolve the tester standing issue going forward.

Laufer, a self-proclaimed tester plaintiff who combed through various hotel websites searching for potential ADA violations, alleged that the website for The Coast Village Inn and Cottages in Maine, which was formerly owned by Acheson Hotels, LLC, did not provide sufficient information about its accessible accommodations in violation of Title III of the ADA and relevant U.S. Department of Justice regulations.

After the case was accepted by the Supreme Court, Laufer voluntarily dismissed her suit and asked the court to dismiss the case as moot. During oral arguments in October 2023, the justices questioned whether Laufer dropping her suit in addition to the facts that Acheson Hotels had already sold the hotel in question and the hotel’s current website is currently compliant with Title III, did not render the case moot.

But Acheson Hotels argued that the high court should decide the important standing questions while the issue was briefed and before the court as another appropriate case might not reach the high court anytime soon.

In the high court’s decision, Justice Amy Coney Barrett, stated that while the Court was “sensitive to Acheson’s concern about litigants manipulating the jurisdiction of” the Supreme Court, they were “not convinced … that Laufer abandoned her case in an effort to evade” the Court’s review. Still, Justice Barrett noted that the Court “may exercise [its] discretion differently in a future case.”

Justice Clarence Thomas stated in a separate concurring opinion that he would not dismiss the case as moot and would find that Laufer lacks standing to bring ADA claims. Justice Thomas argued that Laufer did not allege a violation of her rights under the ADA because “the ADA prohibits only discrimination based on disability—it does not create a right to information.

Justice Thomas distinguished Laufer’s claim from that in the 1968 Supreme Court case in Havens Realty Corp. v. Coleman, in which the high court held, in addressing the Fair Housing Act, that a “dignitary harm” a tester may experience from witnessing discrimination is an adequate harm to establish standing.

Justice Thomas argued that in Havens Realty, “a black tester” who was told there were no apartments available when a “white tester” was told there were “vacancies,” had standing because he had been “personally denied that truthful information.” The situation in that case “thus has no bearing on Laufer’s standing as a tester of compliance with the ADA, which provides no such statutory right to information,” Justice Thomas stated.

Next Steps

With the Supreme Court declining to address tester standing, the issue and broad circuit split remains open. At this time, it is unclear when the high court will have another opportunity to address it, and, if it does, if the plaintiff will effectively moot the case again by abandoning the claim that made its way to the Court. Additionally, while Justice Thomas’s concurrence suggested that Laufer did not have standing based on the facts of her case, the opinion did not reject “dignitary harm” as a basis for standing under Havens Realty.

The Supreme Court to Further Clarify “Transportation Worker” Exemption to the FAA

On September 29, 2023, the U.S. Supreme Court granted certiorari in Bissonnette v. LePage Bakeries Park St. LLC, a case from the Second Circuit Court of Appeals involving application of the Federal Arbitration Act’s (“FAA”) exemption for transportation workers.

Specifically, Section 1 of the FAA exempts from arbitration “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce”—the third category commonly referred to as the “transportation worker” exemption.

In the case below, the plaintiffs—a group of delivery drivers for a bakery—filed various wage and hour claims against the defendant, whom they claimed was their employer.  When the defendant moved to compel arbitration, the plaintiffs argued that, as bakery delivery drivers, they were exempt from arbitration as a “class of workers engaged in foreign or interstate commerce.”

The Second Circuit concluded that the plaintiffs were not exempt from arbitration because they were in the bakery industry, not in the transportation industry.  Therefore, the Second Circuit concluded that the plaintiffs were not transportation workers subject to exemption under Section 1 of the FAA. The Second Circuit’s decision turned, in part, on the interpretation of the U.S. Supreme Court’s decision in Saxon—a case that we previously reported on from last term.

In the Saxon case, the U.S. Supreme Court unanimously held that a ramp supervisor who frequently handled cargo for an interstate airline company was exempt under Section 1 of the FAA as a transportation worker.  In reaching that conclusion, the U.S. Supreme Court’s analysis focused on the “actual work” the worker performed, rather than the industry in which the employer operated—holding that “[the worker] is . . . a member of a ‘class of workers’ based on what she does at Southwest, not what Southwest does generally.”

Though the Second Circuit in Bissonnette acknowledged Saxon, the Second Circuit, in a split decision, held that Saxon did not come into play, stating that “those who work in the bakery industry are not transportation workers, even those who drive a truck from which they sell and deliver the breads and cakes”—essentially establishing a threshold requirement that the individual work in the “transportation industry” in order to be covered by the exemption.

In a pointed dissent, Judge Pooler wrote: “Of course these truckers are transportation workers,” and, “[b]y focusing on the nature of the defendants’ business, and not on the nature of the plaintiffs’ work, the majority offers the sort of industrywide approach Saxon proscribes.”

The U.S. Supreme Court’s forthcoming decision will likely clarify whether the FAA’s exemption contains an industry requirement or whether the analysis turns purely on the nature of the work the individual worker performs without regard to the underlying industry in which they work.  Regardless of the outcome, the U.S. Supreme Court’s decision will provide much-needed guidance at a time when more and more businesses are bringing transportation services in-house—opting to ship and deliver their own products as opposed to relying exclusively on traditional transportation companies.