Tag: Litigation

CareDx v. Natera – The Broad Road to Patent Ineligibility

In CareDx v Natera, Appeal No. 2022-1027, (Fed. Cir., July 18, 2022), a three judge panel of Judges Lourie, Bryson and Hughes, affirmed the district court’s finding that the claims of U. S. patent nos. 8703652, 9845497 and 10329607 are invalid for failing to survive the Alice/Mayo test for patent eligibility. I subtitled this post using Mathew 7:13-14: “Enter through the narrow gate. For wide is the gate and broad is the road, that leads to destruction.” The appeal to the Federal Circuit, which I wrote about on October 15, 2021, never got on the narrow road that leads to viable diagnostic claims. It may not have been possible to overcome the obstacles that blocked the road, but CareDx managed to hit them all, and ended up with three invalid patents on natural phenomena.

The claims were directed to a method for detecting transplant rejection or organ failure by isolating and genotyping a sample from the subject who received the donation, quantifying the cfDNA, and diagnosing the transplant status for an increase in donor cfDNA over time. An increase indicates possible transplant failure.

Judge Lourie summarized the claims, some of which are more than a page long, this way:

“Here, as in Ariosa, the claims boil down to collecting a bodily sample, analyzing the cfDNA  using conventional techniques, including PCR, identifying naturally occurring DNA from the donor organ, and then using the natural correlation between heightened cfDNA levels and transplant health, to identify a potential rejection, none of which was inventive. The claims here are equally as ineligible as those in Ariosa.”

Let’s take a quick look at how CareDx got onto the broad road. CareRx hoped to avoid Ariosa by arguing that it was doing more than just measuring a biomarker correlated to an existing phenomenon. Problem 1 is that CareDx did not discover the correlation; it just improved on it (or did it?). Louie writes:

“CareDx argues that the patents’ claims are directed not to natural phenomena, but to improved laboratory techniques. CareDx contends that the ‘claimed advance’ is an ‘improved, human-designed method for measuring increases in donor cfDNA in a recipient’s body to identify organ rejection.’ … In particular, CareDx identifies the use of digital PCR, NGS, and selective amplification to more accurately measure the donor SNPs of cfDNA transplant recipients. However, CareDx does not actually claim any improvements in laboratory techniques … Furthermore the specification admits that the laboratory techniques disclosed in the claims require only conventional techniques and off-the-shelf technology.”

In fact, CareDx had at least one claim in the ‘497 patent that recites that the assay detects the donor-specific circulating cfDNA from the organ transplant when the donor-specific circulating cfDNA [makes] up at least 0.3% of the total circulating cfDNA in the biological sample. I presume that this claim limitation was put into the claim so that “improvement”  could be argued, but the limitation is not mentioned in the opinion.

Let’s look at a few other things CareDx encountered on its broad road to legal destruction. The panel looked at every step of the method in isolation. In other words, once CareDx argued “improvement” it was forced to admit that the specification disclosed that all those analytical techniques, such as PCR, NGS and “selective amplification”, would be considered as conventional in the art. CareDx might have relied on some of the decisions finding patent eligibility where physical equipment was necessarily involved, such as XL LLC v. Trans Ova Genetics or Illumina v Ariosa.

The finding of conventionality of individual steps permitted the court and the panel to effectively rule that the method was directed to a natural product, since the devices used to carry it out were given no weight. Therefore, the patents failed to pass Step 1 of Mayo/Alice. Could it have been argued, if that was the case, that the equipment used to carry out the method was arranged in a novel sequence? (Also, is someone going to argue that PCR involves replicating small amounts of DNA to afford useful amounts? – This is accomplished by the hand of man.)

These are minor thoughts, CareDX should left the word “diagnostic” out of the claims and the specification. This is certainly no more of a diagnostic test than the Mayo range-finding step was. It is presently clear that in the life sciences, recognition of the utility of a naturally occurring correlation is not enough to avoid patent ineligibility. Of course, and this is cold comfort to CareDx, would it have helped to get this method into the safe harbor of methods of medical treatment? In other words, the first step could recite the actual transplantation step and/or the final step of the process could recite some sort of medical intervention. Narrower claims might have returned CareDx to the narrow path of patent life.

Article By Warren Woessner of Schwegman, Lundberg & Woessner, P.A.

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

© 2022 Schwegman, Lundberg & Woessner, P.A. All Rights Reserved.

PFAS GenX Health Advisories Challenged In Court

On June 15, 2022, the EPA issued Health Advisories (HAs) for five specific PFAS, including GenX PFAS chemicals. The PFAS GenX health advisories set levels at 10ppt for this chemical group. On July 13, 2022, The Chemours Co. filed a petition in the Third Circuit challenging the validity of the EPA’s GenX HA. The company alleges that the EPA acted outside of its bounds of authority, as well as arbitrarily and capriciously, among other arguments. Other industries that will be impacted by upcoming EPA PFAS regulations will closely follow the lawsuit as it makes its way through court, as it may provide predictive indicators of arguments that will unfold as the EPA’s PFAS regulations increase.

PFAS GenX Health Advisories

In October 2021, the EPA released its PFAS Roadmap, which stated explicit goals and deadlines for over twenty action items specific to PFAS. As part of the Roadmap, the EPA pledged to re-assess the existing Health Advisories (HAs) for PFOA and PFOS, as well as establish HAs for PFBS and GenX chemicals. In June 2022, the EPA fulfilled its promise on all fronts when it set HAs for PFOA (interim), PFOS (interim), PFBS (final) and GenX (final). While not enforceable levels for PFAS in drinking water, the EPA’s PFAS Health Advisories are nevertheless incredibly significant for a variety of reasons, including influence on future federal and state drinking water limits, as well as potential impacts on future PFAS litigation.

The levels set by the EPA’s PFAS Health Advisories were as follows:

PFOA .004 ppt
PFOS .02 ppt
GenX 10 ppt
PFBS 2,000 ppt

Chemours Challenge To GenX Health Advisories

Chemours is challenging the EPA’s PFAS GenX Health Advisories primarily on the grounds that the HAs are “arbitrary and capricious.” The company alleges that the HAs are arbitrary and capricious because (1) they incorporated toxicity assumptions that deviate from the EPA’s own standard methods; and (2) “EPA incorporated grossly incorrect and overstated exposure assumptions―in essence, EPA used the wrong chemical when making its exposure assumptions, thereby resulting in a significantly less tolerant health advisory for [GenX] than is warranted by the data. In addition, Chemours argues that the EPA failed to go through the necessary public comment period before issuing its final GenX HA, and that in creating the GenX HA, the EPA exceeded its authority under the Safe Drinking Water Act.

Conclusion

Now more than ever, the EPA is clearly on a path to regulate PFAS contamination in the country’s water, land and air. The EPA has also for the first time publicly stated when they expect such regulations to be enacted. These regulations will require states to act, as well (and some states may still enact stronger regulations than the EPA). Both the federal and the state level regulations will impact businesses and industries of many kinds, even if their contribution to drinking water contamination issues may seem on the surface to be de minimus. In states that already have PFAS drinking water standards enacted, businesses and property owners have already seen local environmental agencies scrutinize possible sources of PFAS pollution much more closely than ever before, which has resulted in unexpected costs. Beyond drinking water, though, the EPA PFAS Roadmap shows the EPA’s desire to take regulatory action well beyond just drinking water, and companies absolutely must begin preparing now for regulatory actions that will have significant financial impacts down the road.

Article By John Gardella of CMBG3 Law

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

©2022 CMBG3 Law, LLC. All rights reserved.

Patent Infringement Verdict Nixed over Judge’s Stock Ownership

The US Court of Appeals for the Federal Circuit reversed a district court’s opinions and orders and remanded the case for further proceedings before a different district court judge because the original judge had failed to divest all financial interests in the case. Centripetal Networks, Inc. v. Cisco Systems, Inc., Case No. 21-1888 (Fed. Cir. June 23, 2022) (Dyk, Taranto, Cunningham, JJ.)

Centripetal sued Cisco for patent infringement. The original district court judge presided over a 22-day bench trial, which included a more than 3,500-page record, 26 witnesses and more than 300 exhibits. The court heard final arguments on June 25, 2020. While the case was still pending before the district court, the judge learned that his wife owned Cisco stock, valued at $4,687.99. The district court judge notified the parties on August 12, 2020, that he had discovered that his wife owned 100 shares of Cisco stock. He stated that his wife purchased the stock in October 2019 and had no independent recollection of the purchase. He explained that at the time he learned of the stock, he had already drafted a 130-page draft of his opinion on the bench trial, and virtually every issue had been decided. He further stated that the stock did not—and could not have—influenced his opinion on any of the issues in the case. Instead of selling the stock, which might have implied insider trading given his knowledge of the forthcoming order, the judge placed it in a blind trust. Under the terms of the trust, the judge was to be notified when the trust assets had been completely disposed of or when their value became less than $1,000.

Centripetal had no objections. Cisco, however, filed a motion for recusal under 28 U.S.C. § 455(a) and (b)(4). The judge ordered Centripetal to file a response. On October 2, 2020, the court denied Cisco’s motion for recusal. On October 5, 2020, the court issued a 167-page opinion and order containing the judge’s findings that Cisco willfully infringed the asserted claims of the patents-at-issue and awarded Centripetal damages of more than $755 million, pre-judgment interest of more than $13 million and a running royalty of 10%. Cisco moved for amended findings and judgment under Rule 52(b) or a new trial under Rule 59(a)(2). The court denied both motions. Cisco appealed the district court’s findings and asserted that the judge was required to recuse himself under 28 U.S.C. § 455(b) absent divestiture under § 455(f) (the only exception to the bright line rule that a federal judge is disqualified based on a known financial interest in a party).

On appeal, the Federal Circuit addressed two issues: whether the district court judge was relieved of his duty to recuse under § 455(b)(4) because his wife had divested herself of her interest in Cisco under § 455(f), and, if the requirements of § 455(f) were not satisfied, a determination as to the proper remedy.

The Federal Circuit analyzed whether placement of the stock in a blind trust satisfied the divesture requirement of § 455(f). The Court explained that a blind trust is “an arrangement whereby a person, in an effort to avoid conflicts of interest, places certain personal assets under the control of an independent trustee with the provision that the person is to have no knowledge of how those assets are managed.” Centripetal admitted that there are no cases holding that placement of stock in a blind trust constitutes divestment. The Court next turned to the intent of Congress when it drafted the statute. The Court reasoned that to “divest” was understood at the time to mean “dispossess or deprive,” which is only possible when an interest is sold or given away. The Court also noted that Congress used the present tense—that a judge should not sit when he or she has a financial interest in a party. The Court concluded that while placing the stock in a blind trust removed the judge’s wife from control over the stock, it did not eliminate her beneficial interest in Cisco. The Court also found that the Judicial Conference’s Committee on Codes of Conduct had previously ruled that a judge’s use of a blind trust does not obviate the judge’s recusal obligations. Accordingly, the Court found that placing assets in a blind trust is not divestment under § 455(f) and, thus, the district court judge was disqualified from further proceedings in the case.

As for the appropriate remedy, the Federal Circuit considered whether rulings made after August 11, 2020, when the district court judge became aware of his wife’s financial interest in Cisco, should be vacated as a remedy for his failure to recuse. The Court determined that the risk of injustice to the parties weighed against a finding of harmless error and in favor of vacatur. The Court reversed the district court’s opinion and order denying Cisco’s motion for recusal; vacated the opinion and order regarding infringement, damages and post-judgment motions and remanded for further proceedings before a new judge.

Article By Jodi Benassi of McDermott Will & Emery

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

© 2022 McDermott Will & Emery

Gerber Argues FDA Preemption in Baby Food Lawsuit

  • In February 2021, the U.S. House of Representatives subcommittee on Economic and Consumer Policy released a report on the levels of heavy metals found in baby foods and the respective manufacturers. The report findings described “significant levels of toxic heavy metals” based on internal documents and test results submitted by baby food companies.  Lawsuits quickly followed, including many actions against Gerber Products Co., that allege Gerber falsely and deceptively failed to disclose the presence of unsafe levels of heavy metals in their baby foods.
  • Gerber argues in a recent motion to dismiss  that the primary jurisdiction doctrine should control. For background, the primary jurisdiction doctrine is a judicial doctrine used when courts and an agency have concurrent jurisdiction, but the court favors administrative discretion and expertise in deciding the issue.   In this case, Gerber argues that the Food and Drug Administration (FDA) is in a better position to decide “acceptable levels of heavy metals in baby foods” because of the need for expertise in issues of infant nutrition.
  • Gerber further alleges that Plaintiff’s claims are preempted by the Food, Drug, and Cosmetic Act (FDCA). Gerber argues that Plaintiff’s demand for mandatory disclosures on packaging is preempted by FDA because it is the Agency’s role to establish national policy on food safety and labeling.  Finally, Gerber says the Plaintiffs fail to plead deception, pointing to a lack of misleading statements on their packaging and no legal requirement to disclose heavy metals on a product label.
  • Keller and Heckman will continue to monitor and report on this litigation and any responsive regulatory actions or developments.

Article By Food and Drug Law Practice Group at Keller and Heckman LLP

For more biotech, food, and drug law legal news, click here to visit the National Law Review.

© 2022 Keller and Heckman LLP

U.S. Supreme Court Agrees with HHS Payment Methodology for Disproportionate Share Hospitals

The fight about how Medicare compensates disproportionate share hospitals (“DSH”) is one of the longest-running reimbursement disputes of recent years, and it has generated copious work for judges around the country.  In a 5-4 decision, the U.S. Supreme Court settled one piece of the conflict:  the counting of “Medicare-entitled” patients in the Medicare fraction of the “disproportionate-patient percentage.”  Becerra v. Empire Health Found., 597 U.S. ___ (2022) (slip op.).  The Supreme Court concluded that the proper calculation, under the statute, counts “individuals ‘entitled to [Medicare] benefits[,]’ . . . regardless of whether they are receiving Medicare payments” for certain services.  Id. (slip op., at 18) (emphasis added).

DSH payments are made to hospitals with a large low-income patient mix.  “The mark-up reflects that low-income individuals are often more expensive to treat than higher income ones, even for the same medical conditions.”  Id. (slip op., at 3).  The federal government thus gives hospitals a financial boost for treating a “disproportionate share” of the indigent population.

The DHS payment depends on a hospital’s “disproportionate-patient percentage,” which is basically the sum of two fractions: the Medicare fraction, which reflects what portion of the Medicare patients were low-income; and the Medicaid fraction, which reflects what portion of the non-Medicare patients were on Medicaid.  Historically, HHS calculated the Medicare fraction by including only patients actually receiving certain Medicare benefits for their care.  In 2004, however, HHS changed course and issued a new rule.  It counted, in the Medicare fraction, all patients who were eligible for Medicare benefits generally (essentially, over 65 or disabled), even if particular benefits were not actually being paid.  For most providers, that change resulted in a pay cut.

The new rule sparked several lawsuits.  Hospitals challenged HHS’s policy based on the authorizing statutory language.  These hospitals essentially argued in favor of the old methodology.  Appeals led to a circuit split, with the Sixth and D.C. Circuits agreeing with HHS, and the Ninth Circuit ruling that HHS had misread the statute.

The Supreme Court has now resolved the issue.  The majority opinion, authored by Justice Kagan, sided with HHS.  The majority concluded that, based on the statutory language, “individuals ‘entitled to [Medicare] benefits’ are all those qualifying for the program, regardless of whether they are receiving Medicare payments for part or all of a hospital stay.”  Id. (slip op., at 18).  The majority also explained that if “entitlement to benefits” bore the meaning suggested by the hospital, “Medicare beneficiaries would lose important rights and protections . . . [and a] patient could lose his ability to enroll in other Medicare programs whenever he lacked a right to [certain] payments for hospital care.”  Id. (slip op., at 11).

Justice Kavanaugh dissented, joined by Chief Justice Roberts and Justices Gorsuch and Alito.  The dissent argued that those lacking certain Medicare coverage should be excluded from HHS’s formula, based on “the most fundamental principle of statutory interpretation: Read the statute.”  Id. (Kavanaugh, J., dissenting) (slip op., at 2).  According to the dissent, the majority’s ruling will also restrict hospitals’ ability to provide care to underprivileged communities.  “HHS’s misreading of the statute has significant real-world effects: It financially harms hospitals that serve low-income patients, thereby hamstringing those hospitals’ ability to provide needed care to low-income communities.”  Id. (slip op., at 4).

There was one point of agreement among the majority and dissenting justices: the complexity of the statutory language for DSH payments.  Echoing the thoughts often held by healthcare advisors, Justice Kagan found the statutory formula to be “a mouthful” and “a lot to digest.”  Id. (majority opinion) (slip op., at 4).  And in his dissent, Justice Kavanaugh called the statute “mind-numbingly complex,” and resorted to an interpretation that he found “straightforward and commonsensical”: that patients cannot be “simultaneously entitled and disentitled” to Medicare benefits.  Id. (Kavanaugh, J., dissenting) (slip op., at 1, 3).

Article By Jeffrey DeBeer and Keith Bradley of Squire Patton Boggs (US) LLP

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

© Copyright 2022 Squire Patton Boggs (US) LLP

Federal District Court Says Pre-Shift COVID Screening Time Not Compensable

In the first reported decision we’ve seen addressing the issue head on, a federal district court in California dismissed a putative collective action claim under the Fair Labor Standards Act (FLSA) seeking payment for time spent in pre-shift COVID screening.

Prior to clocking in each day, the plaintiff—a non-exempt truck driver whose job duties included loading and transporting automobile parts from a central distribution center to stores throughout southern California—was required to submit to COVID-related health screening conducted on his employer’s premises.  During the screening process, a company employee asked the plaintiff a series of questions and took the plaintiff’s temperature.  The total time spent in the screening process often exceeded five minutes, which included waiting time.

The plaintiff filed a collective action claim, contending that the time spent by him and other employees participating in the daily screening was compensable under the FLSA.

Starting with the premise that time spent in pre-shift activities is only compensable under the FLSA if it is “integral and indispensable” to the employee’s “principal activities or activities which [the] employee is employed to perform,” the district court granted the employer’s motion to dismiss the FLSA claims, noting:

A pre-shift COVID screening is not the “principal activity or activities which [the] employee is employed to perform.”  29 U.S.C. § 254(a)(1).  O’Reilly did not hire the employees to undergo health screenings, but instead to load and transport products to stores….  [T]he pre-shift COVID screenings were not “integral and indispensable” to the employees’ duties because the screening was not an intrinsic element of the loading and transporting of products to the stores.  The screenings were not indispensable to the employees’ duties because O’Reilly could eliminate them completely without hindering the employees’ ability to perform their duties….  A pre-shift COVID temperature check and short questions regarding exposure do not share the required nexus with Plaintiff’s duties of retrieving automotive parts and delivering them to auto part stores to make the screening a compensable activity that is integral and indispensable to those activities.

Notably, the court referenced—and then distinguished—the U.S. Department of Labor’s COVID-19 and the Fair Labor Standards Act Questions and Answers, which were issued during the height of the pandemic and which many employers felt were ambiguous on the issue of which COVID-related activities were and weren’t considered “hours worked” under the FLSA:

Unlike the nurse in the DOL example whose principal job duty is to keep patients healthy and has direct patient contact, Plaintiff’s principal activities consisted of manual labor and transportation of auto parts to stores.

We examined those agency Q&As—and the broader issues around compensability of time spent in vaccination, testing, and screening activities—in an earlier blog.

The decision is Pipich v. O’Reilly Auto Enterprises, LLC (S.D. Cal. Mar. 15, 2022).

Article By Allan S Bloom of Proskauer Rose LLP

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

© 2022 Proskauer Rose LLP.

Are You Being Served? Court Authorizes Service of Process Via Airdrop

In what may be the first of its kind, a New York state court has authorized service via token airdrop in a case regarding allegedly stolen cryptocurrency assets. This form of alternative service is novel but could become a more routine practice in an industry where the identities of potential parties to litigation may be difficult to ascertain using blockchain data alone.

Background on the Dispute

According to the Complaint in the case, the plaintiff LCX AG (“LCX”) is a Liechtenstein based virtual currency exchange. As alleged in the Complaint, on or about January 8, 2022, the unknown defendants (named in the Complaint as John Does 1-25) illegitimately gained access to LCX’s cryptocurrency wallet and transferred $7.94 million worth of digital assets out of LCX’s control. Cryptocurrency wallets are similar in many ways to bank accounts, in that they can be used to hold and transfer assets. In the same way a thief can transfer funds from a bank account if they gain access to that account, thieves can also transfer cryptocurrency assets if they gain access to the keys to the wallet holding digital assets.

Following the alleged theft, LCX and its third-party consulting firm determined that the suspected thieves used “Tornado Cash,” which is a “mixing” service designed to hide transactions on an otherwise publicly available blockchain ledger by using complicated transfers between unrelated wallets. While Tornado Cash and other mixing services have legal purposes such as preserving the anonymity of parties to legitimate transactions, they are also utilized by criminals to launder digital funds in an illicit manner.

Even the use of these mixing services, however, can often also be unwound. This is especially true in transactions of large amounts of cryptocurrency, similar to how transactions utilizing complex money laundering schemes in the international banking system can be unwound. According to the blockchain data platform Chainalysis, although Illicit crypto transactions reached an all-time high of $14 billion in 2021, these suspected nefarious transactions accounted for 0.15% of crypto volume last year, down from 0.62% in 2020.

While the Complaint alleges the suspected thieves used Tornado Cash, LCX believes its hired consultants were able to unwind those mixing services to identify a wallet which is alleged to still hold $1.274 million of the allegedly stolen assets.

Unlike bank accounts which have associated identifying information, there are often no registered addresses or other identifying information connected to digital wallets. This makes it difficult to provide the actual proof of service required to institute an action or obtain a judgement against an individual where the only known information is their digital wallet addresses. Service via token airdrop into those wallet addresses solves that issue.

Service Via Airdrop

Service of lawsuits is traditionally made on the defendant personally at a home or business address via special process servers. In cases where service on the individual is not possible for some reason, many states authorize alternative means of service if the plaintiff can show that the alternative means of service likely to provide actual notice of the litigation to the defendant. For example, courts have historically allowed notice via newspaper publication as an alternative means of service where the defendant cannot be serviced personally.

Here, the Court permitted service via “airdrop” in which a digital token is placed in a specific cryptocurrency wallet, similar to how a direct deposit can place funds in a traditional bank account. This particular token contained a hyperlink to the associated court filings in the case, and a mechanism which allowed the data of any individual who clicked on the hyperlink to be tracked. While this is a novel way to serve notice of a lawsuit, similar airdrops have been used to communicate with the owners of otherwise anonymous cryptocurrency wallet owners. Such was the case recently when actor Seth Green had his Bored Ape non-fungible token (“NFT”) stolen and the unknowing buyer of the stolen NFT was otherwise difficult to locate.

While this type of digital service is new, it could be implemented in many disputes in the future regarding digital assets. Similar to the authorization of service that was seen recently in the Facebook Biometric Information Privacy Act litigation (where notice was served on potential class members via email and directly on the Facebook platform), service via airdrop may be the most efficient way to inform potential lawsuit participants of the pending dispute and how they can protect their rights in that dispute.

This type of airdropped service is not without issues, though. First, transactions on the blockchain are largely publicly available, meaning any individual with the wallet address would also be able to see service of the lawsuit notice. Additionally, many users are hesitant to click on unknown links (such as the one in the airdropped LCX) due to legitimate cybersecurity concerns.

While service via airdropped token is unlikely to replace traditional methods of service, it may be a useful means of serving process on unknown persons where there is a digital wallet linked to the acts which the applicable lawsuit relates.

Article By Bryan M. Westhoff, Daniel L. McAvoy, and Jonathan E. Schmalfeld of Polsinelli PC

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

© Polsinelli PC, Polsinelli LLP in California

Ninth Circuit Reverses Class Certification Order Because Liability Issues, Not Merely Damages, Were Individualized

The Ninth Circuit recently addressed an issue that tends to arise frequently in class certification motion practice: how trial courts should apply the predominance requirement where appellate decisions have said that the need to calculate individualized damages generally is not sufficient on its own to defeat class certification, but some putative class members likely have no damages. On these types of issues, plaintiffs often try to characterize defendants’ arguments in opposition to class certification as raising mere “damages issues” that can be addressed individually at the end of a class case, and defendants often respond that the issues they raise go to liability, not merely damages, and in any event the damages trials would be too complicated and impractical. The Ninth Circuit recently clarified that if determining liability requires highly individualized inquiries, a class should not be certified, and any individualized damages trials would have to be feasible.

In Bowerman v. Field Asset Services, Inc., Nos. 18-16303, 18-17275, — F.4th –, 2022 WL 2433971 (9th Cir. July 5, 2022), the plaintiffs contracted with the defendant to perform preservation services on properties being foreclosed on. They claimed that they should have been classified as employees rather than independent contractors under California law, and therefore should have been paid overtime and reimbursed for business expenses. The district court certified a class, decided certain issues on partial summary judgment in favor of the class, and left for a later damages trial whether a class member worked overtime (and to what extent) and whether the class member was entitled to reimbursement for business expenses (and the amount thereof).

The Ninth Circuit reversed the class certification order. It explained that “We need not decide whether common evidence can prove that [defendant] has a uniform policy of misclassifying its vendors” because “[defendant’s] liability to any class member for failing to pay them overtime wages or to reimburse their business expenses would require highly individualized inquiries on whether that particular class member ever worked overtime or ever incurred any ‘necessary’ business expenses.” (Emphasis in original.) The plaintiffs had “mischaracterize[d] an issue of individualized liability as an issue of individualized damages.” (Emphasis in original.) The Ninth Circuit explained that if the question involves the existence of damages, that is a liability issue, not a damages issue.

The Ninth Circuit also concluded that, under its interpretation of the Supreme Court’s decision in Comcast Corp. v. Behrend, 569 U.S. 27 (2013), the plaintiffs had failed to demonstrate that damages were “capable of measurement on a classwide basis” because they could not “show that the whole class suffered damages traceable to their alleged misclassification as independent contractors,” even if the amounts of those damages would need to be proven individually. In addition, determining damages would require “excessive difficulty” because there was little documentary evidence, and “using the individual testimony of self-interested class members to calculate the overtime hours they worked and the business expenses they incurred isn’t easy.” In a bellwether trial conducted by the district court, eight trial days had been required to determine damages for a sample of only eleven class members.

This decision helpfully clarifies the perennial debate between what constitutes a “damages” issue versus a “liability” issue. As I’ve often written on this blog, it can be helpful to think about the class certification analysis by analyzing how the named plaintiffs’ or putative class members’ claims would be tried in an ordinary individual case, and what evidence the defendant would be entitled to introduce. Here, the bellwether trial helped the Ninth Circuit determine that this case could not be litigated on a class basis.

Article By Wystan M. Ackerman of Robinson & Cole LLP

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

Copyright © 2022 Robinson & Cole LLP. All rights reserved.

District Court Rules Most Plaintiffs in Case Do Not Have Standing to Block Florida Stop W.O.K.E. Act

There are two key cases pending before the U.S. District Court for the Northern District of Florida on Florida’s “Stop W.O.K.E. Act”: the Falls, et al. v. DeSantis, et al., matter (No. 4:22-cv-00166) and the Honeyfund.com, et al. v. DeSantis, et al., matter (No. 4:22-cv-00227). The Northern District of Florida has issued its first order on the Act, which went into effect on July 1, 2022.

In an Order Denying Preliminary Injunction, in Part, in the Falls matter, the court concluded that the K-12 teachers, the soon-to-be kindergartner, and the diversity and inclusion consultant who sued Governor Ron DeSantis and other officials to block the Stop W.O.K.E. Act did not have standing to pursue preliminary injunctive relief. The court reserved ruling pending additional briefing on the question of whether the college professor, who also sued, has standing.

Stop W.O.K.E. Act

The Stop W.O.K.E. Act expands an employer’s civil liability for discriminatory employment practices under the Florida Civil Rights Act if the employer endorses certain concepts in a “nonobjective manner” during training or other required activity that is a condition of employment.

Court Order

In the Falls case, a diverse group of plaintiffs claiming they were regulated by the Stop W.O.K.E. Act filed a lawsuit challenging the Act on the grounds that it violates their First and Fourteenth Amendment Rights to free expression, academic freedom, and to access information.

The court, however, did not reach the question of constitutionality. It also did not determine whether the case can move forward, an issue that will be decided when the court rules on the defendants’ pending motion to dismiss.

Instead, the court denied the plaintiffs’ request for a preliminary injunction on the threshold question of standing. It found the plaintiffs (other than the college professor) did not show they have suffered an injury-in-fact that is traceable to DeSantis or another defendant that can likely be redressed by a favorable ruling.

The court found the consultant is not an employer as defined by the Florida Civil Rights Act. Therefore, she could not assert standing on that basis. Instead, she argued she has third-party standing to assert the rights of the employers who would otherwise hire her, and she is harmed by the Act because employers will no longer hire her. The court rejected both theories, finding the consultant-employer relationship is not sufficiently “close” to create standing; employers are not hindered in raising their First Amendment rights on their own; and, based on the evidence presented, the court could not reasonably infer that the consultant has lost or will lose business because of the Act.

Importantly, the court specifically held that it was not ruling on the legality of the Act, whether it was moral, or whether it constituted good policy.

Private Employer

The court highlighted that the sister case pending in the Northern District of Florida (Honeyfund.com) involves a private employer under the Florida Civil Rights Act. In that case, the plaintiffs allege the Stop W.O.K.E. Act violates their right to free speech by restricting training topics and their due process rights by being unconstitutionally vague. Honeyfund.com, Inc. and its co-plaintiffs request that the court enjoin enforcement of the law. The case has been transferred to District Court Judge Mark Walker. The Honeyfund.com case will likely have the largest effect on Florida employers and questions surrounding the enforceability of the Act as to diversity and inclusion training.

***

Since the Stop W.O.K.E. Act took effect, employers are understandably unclear how to proceed with training. Employers should continue to train their employees, but review their training programs on diversity, inclusion, bias, equal employment opportunity, and harassment prevention through the lens of the new law. Employers should also ensure they train the trainers who are conducting these important programs. Finally, employers should understand potential risks associated with disciplining or discharging employees who refuse to participate in mandatory training programs, even if employers do not consider the programs to violate the new law.

Article By Stephanie L. Adler-Paindiris, Samia M. Kirmani, Amanda Simpson, and Lindsay Dennis Swiger of Jackson Lewis P.C.

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

Jackson Lewis P.C. © 2022

Five Administrative Law Takeaways From Recent Supreme Court Decisions

The US Supreme Court’s decisions of late have been consequential. While headline-grabbing decisions deal with religious liberties, privacy, and gun control, the Court’s impact on administrative law will have major consequences as well. Administrative law decisions stemmed from cases involving how the executive shaped policy related to climate change, health care, immigration, and public health. Administrative actions are tied together by procedural rules derived from the constitutional separation of powers and the federal Administrative Procedure Act (APA).

Below, we discuss five major trends derived from this term’s decisions related to administrative law and the separation of powers:

  1. The “major questions doctrine,” and how it can limit executive-branch authority;
  2. How spending can be used to shape behavior in situations where executive-branch authority might otherwise be limited;
  3. The fate of “Chevron deference” – i.e., the judiciary’s willingness to defer to the executive branch’s interpretations of statutes agencies are tasked to administer;
  4. What discretion executive agencies have to change policies, and what steps they need to defend such changes; and
  5. When the Supreme Court will intervene in cases that are moot or which otherwise lower court decision-making might simplify the Court’s resolution of involved issues.

Major Questions Doctrine

The facts that would support a “major questions” analysis of executive actions became clearer with this term’s decisions. The doctrine drove decisions in major cases related to climate change and public health – NFIB v. OSHA, dealing with the federal vaccine mandate, and West Virginia v. EPA, which addressed greenhouse gas regulations. In sum, the Court says that administrative actions with significant economic and political impact require a close look at authorizing legislation to determine if Congress has authorized the action taken.

Some background on these cases. NFIB v. OSHA – decided first – grappled with whether OSHA exceeded its authority when it sought to require certain employers and their employees to receive a COVID-19 vaccine or be subject to frequent testing requirements. (We discussed this case individually in-depth here.) OSHA based its mandate on its authority to relate workplace hazards. Because the vaccine mandate for businesses with over 100 employees would impact roughly 84 million Americans, the Supreme Court accepted that it was a “major question” that involved “great economic and political significance” and therefore was subject to the major questions doctrine. Accordingly, the executive branch was required to point to specific authority supporting the mandate. Because the executive branch could not point to where Congress gave them the power to enforce a vaccine mandate, the Court overturned it.

This decision either reaffirmed the importance of checks and balances or demonstrated that the “major questions doctrine” could be used to prevent the executive branch from flexibly using “old” public health law to address novel issues associated with an airborne pandemic.

The “major questions doctrine” appeared next in West Virginia v. EPA, which we discussed here. To address the issue of climate change, US Environmental Protection Agency (EPA) developed the Clean Power Plan to address carbon dioxide emissions from power plants that relied on owners shifting from fossil fuels to zero-emitting fuels in 2015. This required closures of fossil fuel generating stations and significant investments from the electric generation sector. After the Supreme Court stayed the Clean Power Plan, the Trump Administration proposed a different rule that mandated actions solely at the fossil fuel-fired units and, simultaneously, declared that the Clean Air Act did not authorize the far-reaching legal rationale of the Clean Power Plan.

After addressing some unique procedural issues, which we will discuss below, the Court characterized the Clean Power Plan as effectively remaking the national energy markets. Applying the major questions doctrine, the Court held that such a broad change to the energy sector required a clear congressional mandate, which was not present in the Clean Air Act. In a concurrence, Justice Gorsuch argued that deferring to agencies on matters of great economic or political significance would amount to “Permitting Congress to divest its legislative power to the Executive Branch. . .”

How Spending Can Be Used to Shape Behavior

Whereas the two decisions above illustrate limits on executive power, in Biden v. Missouri, the Supreme Court allowed the executive branch to use spending to compel COVID vaccinations of employees in certain medical establishments. A vaccine mandate in this context was consistent with past policies because Medicare and Medicaid facilities are routinely forced to follow protocols to receive funding.

Clearly, one takeaway from Biden v. Missouri is that the executive is not without power to influence private behavior, so long as spending is involved. The Court found that in the healthcare space, it would be counterintuitive for effective administration of a “facility that is supposed to make people well to make them sick with COVID-19.”

The Fate of the Chevron Doctrine

A third issue worth discussing is the fate of the “Chevron doctrine.” Our takeaway is that the “Chevron” doctrine may have little force at the Supreme Court level, even if parts of its analysis live on. We base this conclusion on the fact that both American Hospital Association v. Becerra and West Virginia v. EPA feature limited deference to the executive vis-à-vis the courts. But, neither case discusses Chevron at all. Why?

The “Chevron doctrine” has been fundamental to modern administrative law while existing in a policy-wonk backwater. The Chevron doctrine was born in the 1984 Supreme Court decision Chevron v. National Resources Defense Council. It provides federal agencies with the ability to interpret the statutes they are tasked to administer without heavy-handed court intervention. Under the traditional Chevron analysis, courts will defer to the federal agency when the relevant statute is ambiguous, and the agency’s interpretation is reasonable.

Two major cases seemed to ignore the doctrine, however:

  • In Becerra, the Court signaled some unwillingness to find statutes “ambiguous.” Becerra involved the US Department of Health and Human Services’ interpretation of the Medicare statute governing hospital reimbursement rates. While the DC Circuit Court of Appeals below found significant ambiguity in the highly technical statute, a unanimous Supreme Court disagreed and held that the plain language of the statute clearly precluded the agency’s interpretation. The fact that the Supreme Court found clarity where the DC Circuit saw ambiguity suggests that the Court has significantly raised the bar for the level of ambiguity necessary for it to adopt an agency’s interpretation.
  • Where Becerra limited the impact of Chevron based on the text of the statute, West Virginia v. EPA established an entire class of cases where Chevron will not apply based on the practical impact of the regulation. By embracing the “major questions doctrine” discussed above, the Court signaled that it will not defer to federal agencies on novel issues unless Congress clearly stated an intent to delegate to the agency. The Court focused on the sweeping impact of EPA’s proposed emissions regulations, in stark contrast to the DC Circuit’s textual analysis of the statutes at issue (and also to the Court’s own textual analysis in Becerra).

While it appears that the Chevron doctrine may currently be gathering cobwebs at the Supreme Court level, it remains to be seen what will happen at the district and appellate levels. Maybe the Chevron doctrine will continue to exist as a sorting mechanism below — scholars have noted that Chevron was far more likely to determine outcomes in the lower courts. But at the very least, the Supreme Court has given federal judges powerful tools to avoid deferring to agency interpretations where they are so inclined.

How and When Agencies Can Change Preexisting Policies

A fourth issue worth highlighting may be found in Biden v. Texas, which involves the Biden Administration’s rescission of the Trump Administration’s Remain in Mexico policy.

First, some policy background: Government agencies have broad discretion in setting and changing policies so long as they follow the appropriate procedures. Generally, these procedures are set forth in the APA, a statute that we discuss with great regularity. Under the APA, the executive’s decisions can only be justified or challenged based on the agency’s administrative record. The regulated community can sometimes request that the Court look beyond the administrative record by showing that the agency acted in bad faith or in a procedurally improper manner. The Court’s last significant decision in this area – Department of Commerce v. New York, which we summarized here – evaluated the Commerce Secretary’s attempts to add a citizenship question to the 2020 census. In Department of Commerce, extra-record discovery revealed that the Secretary planned to add the question all along and had, in fact, solicited the request for the question from the US Department of Justice (DOJ). The Supreme Court determined that the Voting Rights Act rationale was “contrived” and affirmed the lower court’s decision to bar the US Department of Commerce from asking the question.

Regarding this case: Biden v. Texas, which involved the Biden Administration’s rescission of the Trump Administration’s “Remain in Mexico” immigration program – also called the Migrant Protection Protocols (MPP) – evaluated whether the Biden Administration acted appropriately when it rescinded the program. Some background on Biden v. Texas:

  • In January 2019, the US Department of Homeland Security (DHS) began to implement MPP. Under MPP, certain non-Mexican persons arriving by land from Mexico were returned to Mexico to await the results of their immigration cases. After it took office, the Biden Administration first suspended the program and later terminated it.
  • Texas and Missouri challenged the rescission on the grounds that it violated federal immigration law as well as the APA. A Texas federal court accepted the states’ arguments on the grounds that immigration law required DHS to either detain arrivals in the US or in contiguous territory – as MPP did – and that DHS lacked the resources necessary to house arrivals in the US, so a program like MPP was required by statute. The district court entered an injunction requiring the government to “enforce and implement MPP in good faith until such a time as it has been lawfully rescinded in compliance with the APA and until such a time as the federal government has sufficient detention capacity to detain all aliens subject to mandatory detention under [immigration law] without releasing any aliens because of a lack of detention resources.”
  • On appeal, the Secretary of DHS released a second explanation for terminating MPP and sought to vacate the injunction. The appellate court affirmed the lower court’s analysis that the injunction was required and rejected DHS’s second explanation for why the program should be terminated on the grounds that it did not constitute a new or separately reviewable “final agency action,” which triggers APA review.

The Court upheld the rescission of MPP on two grounds: first, because federal immigration law used the word “may” in defining what DHS may do regarding confining persons arriving over land from Mexico. “May” gives the government discretion and establishes contiguous-territory return such as was required by MPP as a tool that the agency “has the authority, but not the duty” to use. Congress could have – but did not – construct the immigration provisions to require MPP.

Additionally, upholding the program required the Court’s consideration of DHS’s during-litigation explanation for why the program should be terminated. The Court accepted the during-litigation explanation because it constituted a wholly new explanation of why the MPP should be terminated. The during-litigation explanation explained that it “superseded” and “rescinded” the earlier termination and then offered “new reasons” that had not been included in the prior rescission. Both the pre-litigation and during-litigation memoranda were separate “final agency actions.”

Finally, because DHS did not rest on its pre-litigation MPP termination, it was permitted to provide additional justifications for its actions, so long as the agency complied with APA-imposed requirements for taking “new” actions. The Court rejected the states’ charge that there was a “significant mismatch between” the rescission and DHS’s explanation for it. DHS’s “ex-ante preference for terminating MPP – like any other feature of an administration’s policy agenda – should not be held against” its actions. Accordingly, DHS’s rescission of MPP was upheld.

An Increase in Procedurally Irregular Case Resolutions? 

A final trend we wanted to highlight is that the Supreme Court appears increasingly willing to wade into disputes at earlier procedural phases than would be typical. Historically, nearly every Supreme Court case has made it to the Court having been fully and finally resolved in lower federal courts. (To be sure, there are some exceptions – most notably the limited class of cases for which the Supreme Court has original jurisdiction, which involve mainly disputes between the states or disputes between ambassadors.) This term, the Court was increasingly willing to wade into disputes which were either arguably moot or have not yet completed their run through lower courts. Three examples:

  • Mootness. In West Virginia v. EPA, during the pendency of litigation, the Biden Administration indicated it would not enforce the regulations at issue and instead would pursue a new rulemaking. The Court found that EPA’s representation that “voluntary cessation does not moot a case” unless it is “absolutely clear that the allegedly wrongful behavior could not be expected to recur.” For the government to moot the case, it would have to suggest that it would not re-impose limitations based on generation shifting – something that it did not do.
  • No lower court finding regarding jurisdiction. In Biden v. Texas, four of the nine justices signed a dissent indicating that lower courts should review whether federal courts had “jurisdiction or authority to enjoin or restrain the operation of” certain immigration laws in light of the Court’s recent decision in Garland v. Aleman Gonzalez, which addressed similar issues. While a majority of the court favored reaching a merits decision, four members of the Court favored remanding the case to lower courts for an evaluation of how Aleman Gonzalez might alter jurisdictional issues in the case.
  • The Court’s Use of its “Shadow Docket.” In Ardoin v. Robinson, the Supreme Court, in an unsigned order with no explanation, reinstated a district voting map in Louisiana that has previously been deemed discriminatory and harmful to minority voting rights. This case was decided under what has been coined the Supreme Court’s “shadow docket” because it refers to cases decided outside normal procedural regularity: off the regular docket, without oral arguments or written briefs, and before lower courts have fully and finally decided the issue. The Court’s use of its “shadow docket” appears to be occurring with increasing frequency. As the Court is likely to remain polarized next term, we may see additional consequential decisions at the “shadow docket” phase then.

This was clearly a major term with significant decisions in many areas, including administrative law. The Court’s next arguments begin in October. We will keep an eye out for new cases relevant to administrative law.

Article By J. Michael Showalter, Samuel A. Rasche, and Rachael A. Bryan of ArentFox Schiff LLP

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

© 2022 ArentFox Schiff LLP