Category: Supreme Court

SCOTUS Significantly Narrows Scope of 28 U.S.C. § 1782 for International Arbitrations

The United States Supreme Court’s recent decision in ZF Automotive US, Inc., et al., v. Luxshare, Ltd., No. 21-401, holds that U.S. federal courts cannot order discovery in aid of international commercial arbitrations or investor-state arbitrations.  In a unanimous decision, the Court reasoned that a “foreign tribunal,” under 28 U.S.C. § 1782, “is best understood as an adjudicative body that exercises governmental authority” rather than a private body that is merely located in another country.  Because the private arbitral tribunal in the ZF Automotive case did not exercise governmental authority, the Supreme Court denied discovery in aid of the proceeding under Section 1782.

The decision resolves a circuit split over whether private commercial arbitration panels should be considered “foreign or international tribunals” under 28 U.S.C. § 1782, and thus whether U.S. discovery should be allowed in such private commercial arbitrations.  Section 1782 authorizes a district court to order the production of evidence “for use in a proceeding in a foreign or international tribunal.”  The Fourth and Sixth Circuits have previously held that international commercial arbitrations are foreign tribunals under the statute, while the Second, Fifth, and Seventh Circuits have held that they are not.  The availability of discovery under Section 1782 is a key issue for the international arbitration community because the scope of discovery allowed under Section 1782 is generally broader than any discovery allowed under institutional arbitral rules or under foreign arbitration laws.

In reaching its decision, the Court found that the word “tribunal” carries a distinctively governmental flavor.  A prior version of Section 1782 covered only “judicial proceeding[s]” in any court in a foreign country, however, Congress later expanded the legislation’s scope to cover proceedings in a “foreign or international tribunal.”  The Court found that while this change broadens the understanding of “tribunal” to include tribunals that are not formal courts, the term is still best understood to refer to an adjudicative body that exercises governmental authority.  Under the decision, a “foreign tribunal” is a tribunal belonging to a foreign nation while an “international tribunal” is best understood as one that involves two or more nations imbued with governmental authority.  Location of the tribunal or the nature of the parties to the dispute are not determinative in this interpretation.

The Court also noted that extending Section 1782 discovery to cover international arbitrations would conflict with the Federal Arbitration Act, which governs domestic arbitrations.  Thus, interpreting Section 1782 as applying to international arbitration would create a “notable mismatch between foreign and domestic arbitration.”

The Court’s decision came in a consolidated case arising out of appeals in the Sixth and Second Circuits.  The first case involves a dispute between Luxshare, a Hong Kong company and ZF Automotive US Inc., a Michigan-based company, over an allegedly fraudulent sales transaction.  The agreement between the parties provided that all disputes would be resolved by an arbitral panel under the Arbitration Rules of the German Arbitration Institute (DIS).  In preparation for bringing an arbitration, Luxshare filed an ex parte petition under Section 1782 in the U.S. District Court for the Eastern District of Michigan seeking information from ZF Automotive and its officers.  The district court granted the petition and ZF Automotive moved to quash, arguing that a panel formed under the auspices of the DIS was not a “foreign or international tribunal” under Section 1782.  The district court denied the motion and the Sixth Circuit denied a stay.

The second case involves AB bankas SNORAS, a Lithuanian bank which was nationalized by Lithuanian authorities.  The Fund for Protection of Investors’ Rights in Foreign States, a Russian corporation, commenced an ad hoc arbitration proceeding against Lithuania under a bilateral investment treaty that the country entered with Russia.  The Fund filed a petition under Section 1782 in the district court seeking information from AlixPartners, LLP, a New York-based consulting firm, and one of its officers.  AlixPartners challenged the petition, arguing that the ad hoc panel was also not a “foreign or international tribunal” under Section 1782.  The district court rejected that argument in a decision that was affirmed by the Second Circuit.

The Court’s decision is likely to spark much discussion in the international arbitration community.  There will likely be a significant impact on current and future international arbitrations, with parties having to consider their strategies for discovery in light of the unavailability of a critical information-gathering tool.  On the other hand, for better and for worse, this decision will further streamline the international arbitration process, as many arbitral proceedings will not be delayed by related litigation over discovery in U.S. courts.

Article By Travis A. Gonyou of Binder & Schwartz

For more arbitration legal news, click here to visit the National Law Review.

© 2022 Binder & Schwartz LLP. All Rights Reserved

ERIC Files Amicus Brief Rebutting DOL Attempt to Create New Regulations in Lawsuit, Petitions US Supreme Court on Seattle Healthcare Case

Read on below for coverage of recent law firm news from McDermott Will & Emery.

ERIC Files Amicus Brief Rebutting DOL Attempt to Create New Regulations in Lawsuit

McDermott Will & Emery’s Andrew C. Liazos, Michael B. Kimberly and Charlie Seidell recently filed an amicus brief in the US Court of Appeals for the 10th Circuit on behalf of the ERISA Industry Committee (ERIC). McDermott filed the brief in response to a US Department of Labor (DOL) amicus brief that advanced a novel interpretation of its regulations which, if adopted through litigation, would change longstanding procedures for benefit determinations under self-funded medical plans sponsored by large employers. The amicus brief focuses on key arguments against the DOL’s attempted regulatory reinterpretation, including that:

  • DOL may not rewrite its regulations outside of notice-and-comment rulemaking;
  • DOL’s interpretation of its own regulations is inconsistent with the plain text of the regulations;
  • There are good policy reasons underlying differential treatment of healthcare and disability benefits determinations; and
  • DOL’s interpretation of the regulations in its amicus brief is not entitled to deference under the Supreme Court decision in Kisor.

Read ERIC’s amicus brief here.

Read ERIC’s statement here.

ERIC Petitions US Supreme Court on Seattle Healthcare Case

McDermott Will & Emery’s Michael B. Kimberly, Sarah P. Hogarth and Andrew C. Liazos, are co-counsel on a petition for certiorari before the Supreme Court of the United States on behalf of the ERISA Industry Committee (ERIC). The petition calls for review of ERIC’s legal challenge to the City of Seattle’s hotel healthcare “play or pay” ordinance. The ordinance mandates hospitality employers make specified monthly healthcare expenditures for their covered local employees if their healthcare plans do not meet certain requirements. The petition demonstrates that Seattle’s ordinance is a clear attempt to control the benefits provided under medical plans in violation of the preemption provision under the Employee Retirement Income Security Act of 1974, as amended (ERISA). This case is of significant national importance. Several other cities have proposed making similar changes, and complying with these types of ordinances will substantially constrain the ability of employers to control the terms of their medical plans on a uniform basis. ERIC’s petition is joined by several trade associations, including the US Chamber of Commerce, the American Benefits Council and the Retail Industry Leaders Association.

Read ERIC’s petition for writ of certiorari here.

Read ERIC’s statement here.

 

Article by , , and .

Attorney Advertising © 2022 McDermott Will & Emery

For more legal industry news, click here to visit the National Law Review.

 

Constitutionality of FTC’s Structure and Procedures Under SCOTUS Review

Both the Federal Trade Commission (FTC) and the Antitrust Division of the Department of Justice (DOJ) have authority to enforce Section 7 of the Clayton Act by investigating and challenging mergers where the effect of such transaction “may be substantially to lessen competition or tend to create a monopoly.”

However, the enforcement paths of these two federal agencies differ markedly. DOJ pursues all aspects of its enforcement actions in the federal court system. The FTC, on the other hand, only uses the federal district courts to seek injunctive relief, but otherwise follows its own internal administrative process that combines the investigatory, prosecutorial, adjudicative, and appellate functions within a single agency.

Whether a transaction is subjected to DOJ or FTC review is determined by a “clearance” process with no public visibility. To many, including entities in the health care industry—and, in particular, parties to hospital mergers that are now routinely “cleared” to the FTC (exemplified by two recently filed enforcement actions against hospitals in New Jersey and Utah)—this process appears to be arbitrary. It is also particularly daunting because the FTC has not lost an administrative action in over a quarter-century. Because of the one-sided nature and duration of these administrative proceedings, most enforcement actions brought against merging hospitals rise or fall at the injunctive relief stage. This process also appears to embolden the FTC into taking unprecedented actions, including the pursuit of enforcement remedies against parties to abandoned transactions.

However, this may soon change. The Supreme Court of the United States has agreed to hear a case that raises a forceful constitutional challenge to the FTC’s structure and procedures. The Supreme Court recently agreed to combine the briefing schedule of this case with a similar case that successfully challenged the constitutionality of the administrative process of the Securities and Exchange Commission. The outcome of these cases may fundamentally alter the FTC’s enforcement process.

Article By E. John Steren and Patricia M. Wagner of Epstein Becker & Green, P.C.

For more antitrust and trade regulation news, click here to visit the National Law Review.

©2022 Epstein Becker & Green, P.C. All rights reserved.

Supreme Court Holds That Judges Can’t Invent Rules Governing Arbitration Waiver

Litigators who defend cases brought under the Fair Labor Standards Act (“FLSA”), particularly ‘collective actions” alleging wage-and-hour violations, often have been able to counter, or even sometimes support, allegations that arbitration agreements have been waived where the conduct of a party has caused prejudice to the other side. In the case of Morgan v. Sundance, Inc., a unanimous Supreme Court has now held that the determinant of waiver is solely dependent upon the nature and magnitude of the actions of the party that might be inconsistent with arbitration, without respect to alleged prejudice.

Morgan thus is an important case for any civil litigator, but it is especially significant for those who deal with employment disputes potentially governed by arbitration agreements, and for those who draw up such agreements in the first place. As is well known, the Court has, in recent years, frequently upheld the primacy of arbitration agreements pursuant to the Federal Arbitration Act (FAA). In the Morgan case, a unanimous Court does it again. Ms. Morgan was an hourly employee at a Taco Bell franchise who had signed an arbitration agreement intended to govern employment disputes. Notwithstanding the arbitration agreement, Morgan went to federal court to bring a nationwide “collective action” arguing that her employer had violated the Fair Labor Standards Act. Sundance, a franchisee of Taco Bell, initially defended against the lawsuit as if the arbitration agreement didn’t exist—filing a motion to dismiss (which the District Court denied) and engaging in mediation (which was unsuccessful). Next, Sundance moved to stay the litigation and compel arbitration under the FAA—almost eight months after Morgan filed the suit. Morgan then expectedly opposed on grounds of waiver of the right to arbitrate.

The governing precedent in the Eighth Circuit, where the case was litigated below, conditioned a finding of waiver of an arbitration agreement on whether the party knew of the right, “acted inconsistently with that right,” and—critical here– “prejudiced the other party by its inconsistent actions.” In deciding that issue, the Court below, as had eight other circuits, invoked “the strong federal policy favoring arbitration” to decide the matter of waiver. Two circuits rejected that rule, and the Supreme Court granted cert. to resolve that split. Justice Kagan, writing for all of the Justices, agreed with those two circuits.

Holding that “the FAA’s ‘policy favoring arbitration’ does not authorize federal courts to invent special, arbitration-preferring procedural rules,” and deciding no other issue with respect to the merits, the Court remanded the case for further proceedings that focus on the whether the employer relinquished its right to arbitrate by its actions that were inconsistent with it. Whatever an employer might otherwise have preferred (given the prior law in most courts of appeals), given the Supreme Court’s holding that any presumption of arbitration and the fact of prejudice are irrelevant, the Morgan case gives clear guidance in several regards, particularly demanding arbitration, if applicable, at the outset of a formal dispute, and resisting any discovery, to the extent possible, until the issue of arbitrability is decided. A defense against waiver simply based on prejudice is not going to fly.

Article By Stuart M. Gerson of Epstein Becker & Green, P.C.

For more arbitration legal news, click here to visit the National Law Review.

©2022 Epstein Becker & Green, P.C. All rights reserved.

Look at Me, Not Through Me: Supreme Court Limits Federal Jurisdiction for Post-arbitration Award Petitions

On 31 March 2022, the United States Supreme Court in Badgerow v. Walters limited federal subject matter jurisdiction over post-arbitration award petitions under the Federal Arbitration Act (FAA) §§ 9 and 10. After years of widening disagreement between circuit courts regarding when a federal court may exercise jurisdiction to confirm or vacate an award, the Supreme Court weighed in and held that federal courts may only exercise jurisdiction to confirm or vacate an award if the face of the application supports diversity or federal-question jurisdiction. One of the implications of this ruling is that many more post-arbitration proceedings to confirm or vacate an arbitration award may be channeled into state courts.

BACKDROP: FAA SECTIONS AT ISSUE

Section 4 states that a party seeking to compel arbitration can file suit in any court that, “save for” the arbitration agreement, would have federal jurisdiction over the underlying dispute.1

Section 9 provides that parties may apply to confirm an arbitration award in the United States court “in and for the district” where the award was made.2

Section 10 provides that parties may apply to vacate an arbitration award in the United States court “in and for the district” where the award was made.3

PRELUDE: VADEN

In its 2009 decision in Vaden v. Discover Bank, the Supreme Court found that federal-question jurisdiction could exist under a “look-through” approach in a § 4 petition to compel arbitration.4 In that case, two questions were presented: (1) whether a district court, when asked to compel arbitration, should “look through” the petition and compel arbitration if the court originally would have had federal jurisdiction; and (2) if so, may the court exercise jurisdiction over the § 4 petition when the original complaint rests on state law but the counterclaim rests on federal law?

The Supreme Court answered the first question affirmatively. In doing so, it emphasized that a “federal court may ‘look through’ a § 4 petition to determine whether it is predicated on an action that ‘arises under’ federal law; in keeping with the well-pleaded complaint rule.”5 However, the Court found that the district court could not exercise jurisdiction over the petition presented in that case, because the complaint was “entirely state-based” and “federal-court jurisdiction cannot be invoked on the basis of a defense or counterclaim.”6

Since Vaden, circuit courts have been divided over whether the “look-through” approach also applies to applications to confirm or vacate awards under FAA §§ 9 and 10. For example, the Fifth Circuit acknowledged the circuit split in Quezada v. Bechtel OG & C Constr. Servs., Inc., noting that the Third and Seventh Circuits decline to apply the look-through approach for confirmation, vacatur, or modification of arbitration awards, but the First, Second, and Fourth Circuits permit the look-through approach.7

Ultimately, a divided Fifth-Circuit panel in Quezada agreed with the majority and held that the Vaden look-through approach applies to applications to confirm or vacate arbitration awards.

OPENING ACTS: BADGEROW V. WALTERS IN THE LOWER COURTS

Badgerow v. Walters followed, implicating the Supreme Court’s Vaden decision and the Fifth Circuit’s Quezada decision on the issue of whether a federal court has subject-matter jurisdiction to review an application to confirm or vacate an arbitration award when the underlying dispute presents a federal question.

The plaintiff in Badgerow initiated arbitration against her former employer’s principals, alleging violation of federal employment law. The arbitration panel dismissed all of her claims, so she filed an action in state court to vacate the arbitration award. The defendants removed the action to the United States District Court for the Eastern District of Louisiana and filed a motion to confirm the award. Plaintiff moved for remand to state court, arguing that the district court did not have jurisdiction over the award; however, the district court denied remand and granted defendant’s motion to confirm the award.8

On appeal, the Fifth Circuit held that it was bound by its precedent in Quezada and applied the look-through approach.9 The Fifth Circuit thus affirmed the district court’s decision to exercise jurisdiction over the dispute.

Plaintiff filed a petition for writ of certiorari, which the Supreme Court granted on 17 May 2021.10

FEATURE: THE SUPREME COURT’S DECISION

In an 8-1 decision,11 the Supreme Court reversed and remanded the case, holding that FAA §§ 9 and 10 lack § 4’s “distinctive language directing a look-through” approach. Thus, without statutory language directing otherwise, “a court may look only to the application actually submitted to it in assessing its jurisdiction.”12 Noting that Congress could have replicated § 4’s look-through language in §§ 9 and 10 but chose not to, the Court held that a federal court only has jurisdiction over an application to confirm or vacate an arbitration award when the face of the application demonstrates diversity or federal-question jurisdiction.

Applying the new rule to the facts of plaintiff’s appeal, the Court explained that the parties were not contesting the federal employment dispute at this stage; rather, the parties were contesting enforcement of the arbitration award. Therefore, the Court held that federal jurisdiction was not appropriate because enforcement of the award, which was “no more than a contractual resolution of the parties’ dispute,” did not amount to federal-question jurisdiction and the parties were not diverse.

SOUVENIR: THE KEY TAKEAWAYS

Following the Supreme Court’s decision in Badgerow limiting federal subject matter jurisdiction over arbitration awards, counsel and parties seeking to confirm or vacate arbitration awards must analyze whether their application, on its face, supports an independent basis for federal subject-matter jurisdiction if they wish to bring their application in federal court. Without the “look-through” approach for §§ 9 and 10 petitions, and in particular where the parties to arbitration provisions are citizens of the same state (and thus lack diversity jurisdiction), state courts will more likely be the primary venue for post-award petitions.

FOOTNOTES

1 9 U.S.C. § 4.

2 9 U.S.C. § 9.

3 9 U.S.C. § 10.

4 Vaden v. Discover Bank, 129 S. Ct. 1262, 1268 (2009) (“A federal court may ‘look through’ a § 4 petition and order arbitration if,” notwithstanding the arbitration agreement, “the court would have jurisdiction over ‘the [substantive] controversy between the parties.’” (citations omitted)).

5 Id. at 1273.

6 Id. at 1269.

7 Quezada v. Bechtel OG & C Constr. Servs., Inc., 946 F.3d 837, 841 (5th Cir. 2020) (“After Vaden, a circuit split developed regarding whether the same look-through approach also applies to applications to confirm an arbitration award under section 9, to vacate under section 10, or to modify under section 11.”).

8 Badgerow v. Walters, — S. Ct. —-, 2022 WL 959675, at *3 (2022).

9 Badgerow v. Walters, 975 F.3d 469, 472–74 (5th Cir. 2020).

10 Badgerow v. Walters, 141 S. Ct. 2620 (2021).

11 Justice Breyer in dissent wrote that although the Court’s decision “may be consistent with the statute’s text,” practical application would create curious consequences, artificial distinctions, and results that are “overly complex and impractical.” Badgerow, 2022 WL 959675, at *10 (Breyer, J., dissenting).

12 Badgerow, 2022 WL 959675, at *3.

Copyright 2022 K & L Gates
For more articles about Supreme Court cases, visit the NLR Litigation section.

Judge Ketanji Brown Jackson Confirmed to U.S. Supreme Court

Judge Ketanji Brown Jackson will become the first Black woman and the third Black Justice to serve on the U.S. Supreme Court.

With support of only a handful of Republican senators, a Senate majority voted to confirm Judge Jackson’s nomination to the Supreme Court, 53-47, on April 7, 2022. Judge Jackson will fill the vacancy left by Justice Stephen Breyer, who will retire at the end of the Court’s current term.

During Judge Jackson’s distinguished legal career, she served as a federal district judge from 2013 to 2021, a judge on the U.S. Court of Appeals for the D.C. Circuit from 2021 to 2022, assistant special counsel and then vice chair on the U.S. Sentencing Commission, a federal public defender, and a private practice attorney.

Despite bringing a new perspective to the bench, Judge Jackson is unlikely to affect the current composition of the Court. Her decisions as a district and appellate judge suggest that, like Justice Breyer, she takes a pragmatic approach to the law.

Judge Jackson’s legal methodology will become apparent shortly after she takes her seat for the 2022-2023 term, which begins on October 3, 2022. The Court is scheduled to hear oral arguments on three cases touching on contentious issues during Judge Jackson’s first term. Judge Jackson, who serves on Harvard University’s board of overseers, has stated she will recuse herself from hearing Students for Fair Admissions, Inc. v. President & Fellows of Harvard, a case involving the use of race in college admissions. However, she will participate in 303 Creative LLC v. Elenis, which asks the Court to decide on the constitutionality of a Colorado state law that prohibits business owners from refusing to provide service to people on the basis of sex, including sexual orientation and gender identity. Judge Jackson also will participate in the Court’s hearing of Merrill v. Millgan, which asks the Court to weigh in on whether Alabama’s proposed congressional district plan violates Section 2 of the Voting Rights Act of 1965.

Judge Jackson is expected to be sworn in before the start of the 2022-2023 term.

Article By Stephanie L. Adler-Paindiris and Stephanie E. Lewis of Jackson Lewis P.C.

For more litigation legal news, click here to visit the National Law Review.

Jackson Lewis P.C. © 2022

Supreme Court’s New Arbitration Ruling: Limits Federal Jurisdiction For Confirming or Challenging Arbitration Awards Under the FAA

On March 31, 2022, the Supreme Court of the United States issued a decision in Badgerow v. Walters, No 20-1143, addressing when federal courts have jurisdiction to rule on motions to confirm, modify, or vacate arbitration awards under the Federal Arbitration Act (FAA). In an 8-1 decision, the Court narrowed the circumstances in which federal courts have such jurisdiction. Under the Court’s new decision, employers (and employees) will now more often be required to file their motions to confirm, modify, or vacate arbitration awards in state rather than federal court.

The Court’s Decision

The Court’s decision addresses a number of arcane questions of civil procedure and federal jurisdiction that could make for a nightmarish law school exam.

The decision starts from the well-accepted premise that the FAA does not grant federal courts jurisdiction. The FAA does, however, give parties to arbitration agreements certain rights, including the right to move a court to compel arbitration and the right to move a court to vacate, modify, or confirm an arbitration award. So the question that follows is: When can parties file these FAA motions in federal court and when must they file them in state court?

Under Badgerow, we now know that the answer is not the same for motions to compel arbitration and motions to vacate, modify, or confirm arbitration awards.

Under the Court’s prior case law, Vaden v. Discover Bank (2009), an employer can file a motion to compel arbitration in federal court so long as the underlying dispute to be arbitrated involves a question under federal law. For example, if an employee is alleging claims under a federal statute, such as Title VII of the Civil Rights Act of 1964, the Family and Medical Leave Act, or any of the myriad other federal employment laws, a federal court would have jurisdiction to rule on a motion to compel arbitration of those claims. In addition to this “federal question” jurisdiction, the federal court might also have jurisdiction based on the diversity of the parties. Under a federal court’s diversity jurisdiction, a court also has jurisdiction to hear disputes between parties that are citizens of different states where the amount in controversy exceeds $75,000.

In Badgerow, the Court held that a different analysis applies to motions to vacate, modify, or confirm arbitration awards, which are governed by different sections of the FAA. Unlike motions to compel arbitration, federal courts are not permitted to “look through” a motion to vacate, modify, or confirm to see whether there is a federal question involved in the underlying arbitration matter. Instead, a federal court must determine whether it has jurisdiction based on the motion itself.

Asking a court to vacate, modify, or confirm an arbitration award will usually raise questions about contract interpretation and enforcement. Contract law is usually state law. Thus, a motion to vacate, modify, or confirm arbitration awards will generally present questions of state law rather than federal law.

Since motions to vacate, modify, or confirm arbitration awards will rarely present federal questions on their face, federal courts will rarely have “federal question” jurisdiction over such motions. Federal courts may still have diversity jurisdiction if the parties on opposite sides of the motion to vacate, modify, or confirm arbitration awards are citizens of different states and the amount in controversy exceeds $75,000. It is also theoretically possible that a federal court could still have federal question jurisdiction on some other grounds, but the Badgerow decision did not delve into that subject.

Key Takeaways

Under the Supreme Court’s new decision, employers will more often need to turn to state courts for motions to confirm, modify, or vacate arbitration awards under the FAA.

State courts historically have been more hostile to arbitration than federal courts. In losing the option of going to federal court to confirm some arbitration awards, arbitration may become marginally less reliable. However, this new decision should not affect the overall benefits that many employers conclude they receive from using employment arbitration.

In addition, the new decision will likely affect employers’ strategies in moving to compel arbitration, because the scope of federal jurisdiction is broader for such motions. In seeking to compel arbitration, employers may now more frequently ask the federal court to retain jurisdiction pending the outcome of the arbitration so that the parties may return to that federal court to address any subsequent motion to vacate, modify, or confirm the resulting arbitration award.

Finally, by forcing employers (and other parties to arbitration agreements) more frequently to go to state court to vacate, modify, and confirm arbitration awards, the Badgerow decision will likely bring to the fore another question that has been looming on the horizon: do the FAA’s provisions permitting motions to vacate, modify, and confirm arbitration awards even apply in state court? Several courts around the country have suggested that they do not, meaning that employers (and other parties to arbitration agreements) will need to rely on state arbitration statutes for such motions in some jurisdictions. But that is another topic for another day.

© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.
For more articles about arbitration, please visit the NLR ADR/Arbitration/Mediation type of law page.

SCOTUS Cert Recap: Copyright Act’s Fair Use Defense, ‘Dormant’ Commerce Clause, And Independent And Adequate State Ground Doctrine

On March 28, the Supreme Court agreed to consider the following three questions:

Is a work of art that copies from a prior work but that conveys a different meaning than the prior work necessarily “transformative” for the purpose of the Copyright Act’s fair use defense?

Does California’s Proposition 12 – which requires all pork sold in California to come from pigs housed in compliance with the state’s animal-confinement rules, even pigs raised entirely in other states – violate the Constitution’s Commerce Clause?

Is Arizona Rule of Criminal Procedure 32.1(g), which requires a state prisoner seeking post-conviction relief to identify a “significant change in the law” that would probably have produced a different result in the prisoner’s case, an adequate and independent state-law ground to support a state-court judgment denying post-conviction relief?

 

On March 28, the U.S. Supreme Court added three cases to its docket for next term: one about when a work of art “transforms” a prior work for the purpose of the Copyright Act’s fair use defense, another involving a “dormant” Commerce Clause challenge to a California law that prohibits selling any pork in the state unless the pork comes from pigs housed in compliance with California’s animal-confinement rules, and a third concerning whether the independent and adequate state ground doctrine bars the Court from reviewing an Arizona state-court decision denying a request for post-conviction relief.

The copyright and Commerce Clause cases – which drew four and five cert-stage amicus briefs, respectively – will capture significant attention from businesses and civil litigators and could each produce landmark decisions in their respective areas of law. The case concerning the independent and adequate state ground doctrine will be of greater interest to those who practice in the post-conviction area – where such issues arise with some frequency – but all lawyers who practice before the Supreme Court should watch that case carefully as well, as the doctrine applies to all state-court decisions whatever the subject matter.

When Works Are ‘Transformative’ Under the Copyright Act’s Fair Use Defense

In Andy Warhol Foundation for the Visual Arts v. Goldsmith, the Court will return to a question it confronted last year in Google v. Oracle: When does copying a portion of a copyrighted work constitute protected “fair use” under the Copyright Act?

The notion of “fair use” in the copyright context initially developed as a common-law doctrine to allow borrowing in some situations in order to further the Copyright Act’s general purpose of fostering creativity and innovation. Congress codified that doctrine in 1976, and the Copyright Act now expressly recognizes fair use as a defense and lists four non-exclusive factors courts should consider in determining whether a use is “fair”: 1) the purpose and character of the use, 2) the nature of the copyrighted work, 3) the amount used in relation to the copyrighted work as a whole, and 4) the effect of the use upon the potential market for the copyrighted work.

As the Court explained in Google, the first of these factors – the purpose and character of the use – asks “whether the copier’s use adds something new … altering the copyrighted work with new expression, meaning or message,” and the Court has “used the word ‘transformative’ to describe a copying use that adds something new and important.” This case offers the Court an opportunity to provide further detail on what it means for a work of art to be “transformative” in this sense. It concerns a series of silkscreen prints and pencil illustrations created by Andy Warhol – whose foundation is the petitioner here – based on a 1981 portrait photograph of Prince taken by the respondent, Lynn Goldsmith. The foundation argues that the works are necessarily transformative because they convey a new meaning: namely, that they portray Prince as an “iconic” figure rather than the “vulnerable human being” depicted in Goldsmith’s photograph.

In its decision below, however, the Second Circuit rejected the notion that imbuing a work with a new meaning is necessarily “transformative.” It observed that such a rule would seem to expand fair use to make copyright licensing unnecessary in the “paradigmatically derivative” context of film adaptations – since many movies transform the message of the underlying literary work – and it noted that ascertaining the meaning of artistic works is a subjective endeavor to which judges are typically unsuited. Instead, it held that Warhol’s work is not transformative on the ground that it is “both recognizably deriving from, and retaining the essential elements of, its source material.”

The Supreme Court is now set to review this decision and thereby give litigants and lower courts further guidance on what makes a work that borrows from another sufficiently “transformative.” Copyright practitioners around the country will be closely following what the Court says.

Commerce Clause Limits on States’ Authority to Regulate Commerce

In National Pork Producers Council v. Ross, the Court will consider a challenge to California’s Proposition 12, a law that sets minimum size requirements for pig pens – and that extends those requirements to farmers across the country by making compliance with them a condition of selling pork in California.

The challengers contend that the out-of-state application of these pen-size rules violates the Commerce Clause. They note that, while the Commerce Clause is expressly framed as a grant of authority to Congress, the Supreme Court has long read the Commerce Clause to also implicitly limit states’ regulatory authority. This doctrine, often called the “dormant” Commerce Clause, has a handful of different components, and two are at issue in this case.

The first, known as the extraterritoriality doctrine, has been invoked in a number of Supreme Court decisions but is most prominently associated with the 1980s decisions Brown-Foreman Distillers Corp. v. New York State Liquor Authority and Healy v. Beer Institute. The challengers here argue that under these decisions, a state law per se violates the Commerce Clause if its practical effect is to control conduct beyond the state’s boundaries, and they contend Proposition 12 does so by effectively requiring out-of-state farmers to follow California’s pen-size rules on pain of exclusion from the California market. And California responds that Proposition 12 merely regulates in-state sales, and that any indirect, upstream effects it has on farmers is insufficient to run afoul of the extraterritoriality doctrine.

The second issue concerns the balancing test the Supreme Court articulated in Pike v. Bruce Church, which bars state laws that impose a burden on interstate commerce that “is clearly excessive in relation to the putative local benefits.” Here the parties dispute the significance of Proposition 12’s economic effects and the strength of the interests underlying the law – issues that could become complicated by the motion-to-dismiss posture of the case.

The Court has now agreed to address both of these issues, and whatever the Court decides, its decision will carry implications for the validity of state commercial regulations in a wide variety of industries across the country.

The Scope of the Independent and Adequate State Ground Doctrine

In Cruz v. Arizona, the Court will take up a criminal-law case that presents a recurring issue that arises in both criminal and civil cases alike: When does a state-court decision rest on an independent and adequate state ground such that the U.S. Supreme Court lacks jurisdiction to review the decision?

The case arises from the Supreme Court’s 1994 decision in Simmons v. South Carolina, which held that where a capital defendant’s “future dangerousness is at issue, and state law prohibits the defendant’s release on parole, due process requires that the sentencing jury be informed that the defendant is parole ineligible.” The Arizona Supreme Court later concluded that Simmons was inapplicable in Arizona – on the theory that Arizona law did not universally prohibit capital defendants’ release on parole – but the U.S. Supreme Court overturned that conclusion in Lynch v. Arizona.

Shortly thereafter, Cruz – a capital defendant whose trial and sentencing occurred after Simmons but before Lynch – filed a petition for post-conviction relief in Arizona state court. Because this was not Cruz’s first petition, he sought relief under Arizona Rule of Criminal Procedure 32.1(g), which at the time provided that relief would be available even for successive petitions where there “has been a significant change in the law that if determined to apply to defendant’s case would probably overturn the defendant’s conviction or sentence.”

Cruz argued that Lynch constituted a significant change in the law and that it applied retroactively to render his sentence unlawful. And after the Arizona Supreme Court rejected his claim, he filed a cert. petition arguing that federal law requires applying Lynch retroactively in state post-conviction proceedings. Arizona, meanwhile, countered that the Court would lack jurisdiction under the independent and adequate state ground doctrine: The Arizona Supreme Court’s decision, the state argued, simply concluded that Cruz failed to meet the state-law requirements of Rule 32.1(g).

While the U.S. Supreme Court granted Cruz’s cert. petition, it has limited its consideration to only the question concerning the independent and adequate state ground doctrine. And because its answer to that question could affect jurisdictional rulings in all manner of cases, the case will be of interest to anyone who practices before the Court.

Article By Kian Hudson of Barnes & Thornburg LLP

For more litigation legal news, click here to visit the National Law Review.

© 2022 BARNES & THORNBURG LLP

Copyright Dispute Over Andy Warhol’s Portraits of Prince Heading to U.S. Supreme Court

The U.S. Supreme Court will review the standard for a “transformative” work as “fair use” under the Copyright Act.   Specifically, whether a second work of art is “transformative” when it conveys a different meaning or message from its source material, or not where it recognizably derives from and retains the essential elements of its source material.

The Court agreed to review the Second Circuit’s decision that Andy Warhol’s Prince Series portraits of the musician Prince did not make fair use of celebrity photographer Lynn Goldsmith’s photograph of Prince.  Andy Warhol Found. for the Visual Arts, Inc. v. Goldsmith, No. 21-869 (petition granted Mar. 28, 2022).

The Warhol Foundation’s (AWF) petition argues that the Second Circuit’s decision contradicts Supreme Court precedent that a new work is “transformative” if it has a new “meaning or message” citing Google LLC v. Oracle Am., Inc., 141 S. Ct. 1183, 1202-03 (2021) (quoting Campbell v. Acuff-Rose Music, Inc., 510 U.S. 569, 579 (1994).  AWF also argued that the Second Circuit’s decision creates a circuit split where the Ninth Circuit has held that even with few physical changes a work can be transformative if new expressive content or a new message is apparent.  As a result, this decision “threatens massive restrictions on First Amendment expression” that would create a “sea-change in the law of copyright.”

Goldsmith’s opposition brief asserts that the AWF mischaracterizes Supreme Court precedent.  And that the Second Circuit “faithfully applied” the proper test for transformativeness in determining Warhol’s series of silkscreen prints were not fair use.  Goldsmith also argues petitioner has manufactured a circuit split that does not exist.

This dispute stems from a a declaratory judgment action filed in 2017 by the Andy Warhol Foundation in the Southern District of New York seeking that Warhol’s portraits of Prince did not infringe photographer Lynn Goldsmith’s photograph.  In 2019, the district court granted summary judgment to the Warhol Foundation, holding that the Prince Series was “transformative” because it incorporated a new meaning and message different from Goldsmith’s photograph.

In 2021, the Second Circuit reversed, holding that Warhol’s portraits were not fair use as a matter of law.  The Second Circuit held that Warhol’s use was not “transformative,” even though Warhol’s use included some visual differences from Goldsmith’s photograph, because Warhol’s use “retains the essential elements of the Goldsmith Photograph without significantly adding to or altering those elements.”

Multiple amicus briefs supporting the Warhol Foundation were filed including by a group of 12 copyright law professors; a group of 13 art law professors; artists and art professors Barbara Kruger and Robert Storr; and the Robert Rauschenberg Foundation, Roy Lichtenstein Foundation, and Brooklyn Museum.  The visual arts community and content creators in every industry will heavily watch this case.

The Supreme Court will hear the Warhol case in its new term, which begins in October.

Article By Susan M. Kayser and Eric W. Lee of K&L Gates

For more intellectual property legal news, click here to visit the National Law Review.

Copyright 2022 K & L Gates

Broad Majority Decisions in Terrorist Torture and Abortion Law Cases Resolve Important State Secrets and Intervention Procedural Issues: SCOTUS Today

The Court has decided two important cases today, United States v. Zubaydah, upholding the government’s assertion of the state secrets privilege and rejecting the al Qaeda terrorist leader’s discovery request for information concerning his torture by the CIA, and Cameron v. EMW Women’s Surgical Center, P.S.C., allowing the intervention of the Kentucky attorney general to assume the defense of the state’s abortion law after the official who had been defending the law decided not to seek further review. Both cases are, at root, about significant issues of public interest and policy—the torture of terrorists and restrictive abortion policies—but neither opinion resolves any such question. Indeed, the lessons learned from each of these cases are essentially procedural, and though the outcomes are determined by significant margins, the alliances of Justices on the multiple opinions published are also instructive.

Zubaydah has been among the most closely watched cases on the Court’s docket. Full disclosure: I am a board member of the Center for Ethics and the Rule of Law at the University of Pennsylvania, which has advocated for the closing of the Guantanamo Bay Naval Base in Cuba, where Zubaydah is detained, and for the rejection of privilege claims as to non-classified information concerning torture. Though I am not surprised by the outcome in the case, it is contrary to what many human rights organizations have been advocating. The admixtures of Justices also provide interesting insights as to how they approach matters of privilege and national security.

In what likely will be one of the last majority opinions written by retiring Justice Stephen Breyer, and subject to various concurrences by Justices Thomas, Kagan, Kavanaugh, and Barrett, the Court reversed the Ninth Circuit and upheld the government’s assertion of state secrets privilege to deny Zubaydah’s attempt to subpoena two CIA contractors from whom he sought to obtain information for use in litigation in Poland concerning his torture at an alleged “black site” in that country. The state secrets privilege allows the government to bar the disclosure of information that, were it revealed, would harm national security. United States v. Reynolds, 345 U. S. 1, 6–7 (1953). While the Ninth Circuit had accepted much of the government’s claim, it concluded that the privilege did not cover information about the location of the detention site, which the court believed had already been publicly disclosed. Indeed, it is clear from the record in the case that there has been substantial public discussion of such a detention site in Poland. However, although the government has concluded that the “enhanced interrogation” to which Zubaydah had been subjected constituted torture, the fact of its location in Poland has never been formally confirmed by the United States. The state secrets privilege permits the government to prevent disclosure of information when that disclosure would harm national security interests, such as “the risk of revealing covert operatives, organizational structure and functions, and intelligence-gathering sources, methods, and capabilities.” Here, Justice Breyer, in a textbook case displaying the essential role that he has played on the Court in pragmatically fashioning majorities to form consensus opinions in controversial cases, accepted the view that verifying the existence, or non-existence, of a CIA black site in Poland, falls within the state secrets privilege because confirmation or denial of the site’s existence and location, even if such information has already been made public through unofficial sources, would harm relations among foreign intelligence services vital to U.S. interests. The majority also noted that the locational information is not essential to the case that Zubaydah is attempting to make, but it also rejected the remand to consider issues of Zubaydah’s treatment that Justices Kagan, concurring, and Justice Gorsuch (interestingly, joined by Justice Sotomayor), dissenting, would have allowed. In a case where there is virtually no disagreement among the Justices as to what the law is, the decision comes down to a procedural formulation that Justice Breyer loosely compares to applying exemptions under the Freedom of Information Act. In any event, the majority held that, as an objective matter, the government’s assertions of privilege and national security risk satisfied its burden of responding to the demand for information.

Notwithstanding the great public interest that surrounds the debate and litigation concerning the efforts of various state legislatures to restrict abortion and to obtain the reversal or narrowing of Roe v. Wade, the Court’s 8-1 majority (only Justice Sotomayor dissented) held only that the Court would not adopt an arbitrary claims-processing rule barring a non-party intervener from taking over an appeal, especially under the conditions presented here. Having first concluded that neither a jurisdictional requirement nor a mandatory claims-processing rule barred consideration of the attorney general’s motion, the Court concluded that no statute or rule restricts the jurisdiction of a court of appeals or provides a general standard to apply in deciding whether intervention on appeal should be allowed. The one passing reference to intervention made in the Federal Rules of Appellate Procedure only concerns the review of agency action. Accordingly, with “respondents cit[ing] no provision that deprives a court of appeals of jurisdiction in the way they suggest, and no such supporting language can be found in 28 U. S. C. §2107, Federal Rules of Appellate Procedure 3 and 4, or any other provision of law. . . [the] Court refuses to adopt what would essentially be a categorical claims-processing rule barring consideration of the attorney general’s motion. When a non-party enters into an agreement to be bound by a judgment in accordance with the agreement’s terms, it is hard to see why the non-party should be precluded from seeking intervention on appeal if the agreement preserves that opportunity. Here, the attorney general reserved ‘all rights, claims, and defenses . . . in any appeals arising out of this action.’ That easily covers the right to seek rehearing en banc and the right to file a petition for a writ of certiorari.”

Justice Sotomayor’s dissent, like the cheese, stands alone. She argues that every case should have a certain end point, and one should be applied here. One wonders if she would entertain a similar opinion in a case like this but where the plaintiffs are appealing. In any event, all of the other Justices are unified by the absence of any textual limitation on their jurisdiction to entertain a motion to intervene on appeal and the reasonable justification made for it by the state attorney general. Where Justice Alito found a constitutional basis for this conclusion and Justice Kagan would only have relied upon statutory interpretation, the vast majority of the Court agreed on the procedural regime adopted irrespective of the fact that there likely would be considerable disagreement about the constitutionality of the statute at issue in the underlying litigation.

©2022 Epstein Becker & Green, P.C. All rights reserved.
For more articles about Supreme Court cases, visit the NLR Litigation section.