Tag: SCOTUS

Preparing Corporate Messaging in the Wake of Dobbs

The United States Supreme Court (“SCOTUS”), in Dobbs v. Jackson Women’s Health Organization, has held that there is no constitutional right to abortion, overruling Roe v. Wade and Casey v. Planned Parenthood.

Employers, who increasingly are finding themselves on the front lines of many societal issues, will need to decide quickly whether and how they might address the Dobbs decision, as public reaction has been and is likely to remain strong. Board members, employees, and shareholders may advocate for corporations to take a visible stand on the issue of abortion and reproductive rights. And employees may want to speak up themselves (possibly via employer social media accounts).

It is important to remember that company communication decisions and actions regarding the Dobbs ruling, as well as other political and social issues, can have practical and legal implications.

The first question is whether your company will comment on Dobbs. If you decide to comment, there are many factors to consider. Your message is an important starting point. Who is your intended audience? Will your employees consider it an opportunity to join in the conversation? What will you say? Even if your message is internal, keep in mind that it may not stay that way, given the nature of social media. And before you think, “I’ll just stay out of it,” remember that some will view silence or neutrality as a statement in and of itself. If you choose not to speak, are you prepared to deal with any potential reaction from customers, employees, or shareholders?

Internally, employees may have questions about health benefits or other terms and conditions of employment because of Dobbs. It will be important to arm all key stakeholders, including leadership, corporate communications, and human resources, with tools to consistently manage these communications and responses.

Whether it’s internal or external communications, expect feedback! How that feedback is handled is as important as the initial communication (or lack thereof).

Certain industries, like healthcare and insurance, may also feel compelled to make an affirmative statement if the Dobbs decision has a direct impact on services and/or products. In those cases, the need to consider all implications is even more pressing.

In thinking through these decisions, employers should also consider who may need to approve any messaging. The board of directors, senior executives, legal, and marketing and communications teams are among the key stakeholders who may need to be consulted. And don’t forget that your public-facing employees may bear the brunt of your response. Are they prepared?

Employers should also keep in mind various laws that may govern their reaction, including those they might otherwise not consider. For example, the National Labor Relations Act protects employees’ rights to collectively discuss terms and conditions of employment at work and off duty – and that applies to employers with and without a unionized workforce. The current Biden-appointed General Counsel of the National Labor Relations Board has taken an expanded view of topics that are connected to the workplace. Moreover, some states, including California and New York, have enacted off-duty conduct laws that prohibit employers from disciplining employees for lawful conduct outside of work, which may include political advocacy. There may also be anti-discrimination laws and potential civil and criminal liability associated with your statements, depending on their wording.

Reactions to the Dobbs decision may vary. Some reaction may be comparable to what we’ve seen with respect to other recent political and/or social justice movements, such as Black Lives Matter and #MeToo; others may react differently, or not at all. In these rapidly changing times, companies — particularly publicly traded and consumer-facing ones — need to be make informed decisions. Clear, consistent messaging is key to establishing confident and consistent responses to potential concerns by employees and other stakeholders.

Article By M. Carter DeLorme, Frank C. Morris, JR, Susan Gross Sholinsky, Jennifer Barna, and Erin E. Schaefer of Epstein Becker & Green, P.C.

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

U.S. Supreme Court Overturns Roe and Casey: What This Decision Means for Employers

As many expected based on the draft opinion that was leaked months ago, the U.S. Supreme Court has held the U.S. Constitution does not protect the right to obtain an abortion. Dobbs v. Jackson Women’s Health Organization, No. 19-1392 (June 24, 2022).

Dobbs overturns nearly 50 years of precedent from the Court’s decision in Roe v. Wade and Planned Parenthood Pennsylvania v. Casey on the issue.

The impact of Dobbs will vary, as states are now at liberty to enforce and create abortion legislation without restrictions arising out of constitutional protections.

What does this mean for employers?

As pressure mounts on this issue, some employers may be considering what, if anything, they can or should do. Many states have enacted legislation that restricts individual abortion rights and potentially third parties who assist individuals who seek abortions. To the extent any state laws were not enforced because of the Court’s holding in Roe or Casey, states can move forward now to implement and enforce those laws.

Laws often referred to as “trigger laws,” those that are in place but unenforceable due to overriding federal restrictions, become enforceable once those federal restrictions are lifted. As a result of Dobbs, abortion-related “trigger laws” previously unenforceable can take effect, creating new standards for individuals and others that will redefine the national abortion law landscape.

Some existing state laws and trigger laws may affect employers and put employers at risk of violating state law if they implement policies to assist employees seeking an abortion or even continue to cover abortions under group health plans. For example, a state law may create liability for anyone who “aids or abets” a person who obtains an abortion. Employers also must be cognizant of how they apply their leave policies, who may seek accommodations based on a sincerely held religious belief, and whether certain provisions of the Pregnancy Discrimination Act apply to women who are seeking or who have had an abortion.

In addition, the Court’s ruling may affect employee benefit plans. Many employers are considering additional benefits for their employees, and their covered dependents, such as travel reimbursement for seeking an abortion outside of the local jurisdiction due to state law restrictions. There are many legal issues to consider in connection with the coverage of abortion-related services under employee benefit plans. (For additional guidance on the issue, see our article, Group Health Plan Considerations in the Face of (Potentially) Changing Abortion Laws.) Depending on how the state laws are enacted, there also may be issues with relying on ERISA preemption provisions to avoid these obligations.

Corporate management and directors should plan for changes and be aware of policies and fiduciary responsibilities. This can include preparing for public and employee reactions (for and against), legislative and law enforcement threats, social media posts, and other employee demonstrations. Pressure from a variety of groups to take a corporate public opinion also may occur.

Whether changes to leave policies, employee benefits, travel reimbursement, or handling accommodation requests, employers considering policies or benefit offerings in response to Dobbs must carefully review and consider federal and state laws, including state abortion-related legislation to evaluate the risk of potential liability.

Article By Patricia Anderson Pryor, Joy Napier-Joyce, Melissa Ostrower, and Tasos C. Paindiris of Jackson Lewis P.C.

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BREAKING: Supreme Court Reverses California Court of Appeal in Viking River Cruises v. Moriana

On June 15, 2022, the U.S. Supreme Court issued its decision on Viking River Cruises, Inc. v. Moriana (Case No. 20-1573) reversing the California Court of Appeal’s decision to affirm the denial of Viking’s motion to compel arbitration Moriana’s “individual” PAGA claim and to dismiss her other PAGA claims.

As previously reported, the question presented in Viking River Cruises involved whether the Federal Arbitration Act (“FAA”) preempts the California Supreme Court’s decision in Iskanian v. CLS Transp. Los Angeles, LLC, 58 Cal.4th 380 (2014), which invalidates contractual waivers of representative claims under California’s Labor Code Private Attorneys General Act (“PAGA”).

In a majority opinion authored by Justice Alito, the Court held that while Iskanian’s prohibition on “wholesale waivers” of PAGA claims is not preempted by the FAA, Iskanian’s rule that PAGA actions cannot be divided into “individual” and “non-individual claims” is preempted.

Applying this holding to the parties, the Court held that Viking was entitled to enforce the parties’ arbitration agreement insofar as it mandated arbitration of Moriana’s individual PAGA claim.  As for Moriana’s non-individual PAGA claims,  because PAGA itself “provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding,” Moriana lacks “statutory standing” under PAGA to litigate her “non-individual” claims separately in state court.  Accordingly, “the correct course is to dismiss her remaining claims.”

Article By Timothy Kim and Michele J. Beilke of Hunton Andrews Kurth

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Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.

Supreme Court Declines to Resolve Circuit Split on Exercise of Personal Jurisdiction in FLSA Collective Actions

On June 6, 2022, the Supreme Court of the United States declined to hear petitions seeking review of whether federal courts may exercise personal jurisdiction over claims of nonresident plaintiffs who join Fair Labor Standards Act (FLSA) collective actions when their claims are not connected to the defendant’s activities in the forum state. The petitions sought review of rulings on the issue by the First and Sixth Circuit Courts of Appeals in Waters v. Day & Zimmermann NPS, Inc. and Canaday v. The Anthem Companies, Inc., respectively. As a result of the Supreme Court’s decision declining to hear the petitions, there remains a circuit split as to whether the Court’s 2017 ruling in Bristol-Myers Squibb Co. v. Superior Court applies to FLSA collective actions, and employers with nationwide footprints remain subject to uncertainty depending on jurisdiction.

To date, only the First, Sixth, and Eighth Circuits have ruled on the issue. On August 17, 2021, the Sixth Circuit was the first to address the issue in Canaday. There, the Court held that federal courts may not exercise personal jurisdiction over claims of nonresident plaintiffs who join FLSA collective actions when their claims are not connected to the defendant’s activities in the forum state. Just one day later, on August 18, 2021, the Eighth Circuit came to the same conclusion in Vallone v. CJS Solutions Group, LLC.

On January 13, 2022, in Waters, the First Circuit held to the contrary, concluding that federal courts do have personal jurisdiction over claims asserted by nonresident opt-in plaintiffs.

The Significance of Bristol-Myers

The Supreme Court’s decision in Bristol-Myers provides the basis for the current circuit split. Bristol-Myers involved a mass tort action under state law for alleged defects in a blood-thinning drug, Plavix, which the company manufactured. Residents and nonresidents of California sued Bristol-Myers in California state court, alleging injuries related to the drug. The nonresident plaintiffs claimed no relationship with the forum state, nor did they purchase Plavix in California or suffer any harm from it in California. The Supreme Court reasoned that any similarity between the resident and nonresident plaintiffs’ claims was an “insufficient basis” to exercise specific jurisdiction. Unless nonresident plaintiffs could demonstrate that their claims arose out of the defendant’s contacts with the forum state, personal jurisdiction over the company did not exist, no matter “the extent of a defendant’s unconnected activities in the State.”

In ruling that the California state court lacked jurisdiction over the claims of the nonresident plaintiffs, the Supreme Court acknowledged that its holding might ultimately generate more litigation in the form of separate actions by nonresident plaintiffs in their respective states. But the Supreme Court also noted that all plaintiffs to the action could have brought a mass tort action against Bristol-Myers in New York (the company’s headquarters) or Delaware (its place of incorporation) because courts in those states would have had general personal jurisdiction over the company. Instead, the California state court could exercise only specific personal jurisdiction over the company based on its activities in the state. Notably, Bristol-Myers was limited to Rule 23 class actions, leaving lower courts to determine whether its holding applied to FLSA collective actions, which differ procedurally.

The Circuit Split

In Canaday, the Sixth Circuit reiterated the basic tenet that, pursuant to the Due Process Clause of the Fourteenth Amendment, the question of whether a court has personal jurisdiction over a defendant depends on the defendant’s contacts with the state in which the plaintiff filed the lawsuit. Because Anthem is both incorporated and headquartered in Indiana and not otherwise “at home” in the state of Tennessee, the district court in Tennessee lacked general jurisdiction over Anthem as a defendant. At issue was whether the district court in Tennessee had specific personal jurisdiction over Anthem, and thus, whether there was a claim-specific and Anthem-specific relationship between the nonresidents’ FLSA claims and the state of Tennessee.

Applying Bristol-Myers, the Sixth Circuit held that there was not. The court found that the nonresident plaintiffs did not bring claims arising out of or relating to Anthem’s conduct in Tennessee, because Anthem neither employed nor paid the nonresident plaintiffs within the state. The Sixth Circuit went on the explain that adherence to this approach should not change the way FLSA collective actions are filed, because plaintiffs traditionally file their actions where courts have general jurisdiction, or where the conduct occurred. Of note, Sixth Circuit Judge Bernice Donald dissented in Canaday, contending that Bristol-Myers does not apply to FLSA collective actions because the Supreme Court in that case addressed only the limitations of state courts, not federal courts, in their exercise of personal jurisdiction over nonresidents.

In Waters, the First Circuit largely followed the reasoning in Judge Donald’s dissent, concluding that the Supreme Court’s decision in Bristol-Myers Squibb “rest[ed] on Fourteenth Amendment constitutional limits on state courts exercising jurisdiction over state-law claims” and thus did not control whether a federal court could exercise jurisdiction over federal claims asserted by nonresident plaintiffs. The First Circuit also observed that the plain language of Rule 4(k) of the Federal Rules of Civil Procedure merely concerns the service of summonses and does not “constrain[] a federal court’s power to act once a summons has been properly served, and personal jurisdiction has been established.”

Key Takeaways

The Supreme Court’s decision to deny the petitions means that employers with nationwide footprints continue to live with potentially inconsistent rulings on the question of whether a federal district court has jurisdiction to hear claims of out-of-state workers when the defendant is neither headquartered nor incorporated in the state. Canaday and Vallone stand to significantly limit the size and geographic scope of FLSA collective actions in the Sixth and Eighth Circuits, absent a district court’s exercise of general jurisdiction over a corporate defendant, while Waters permits nationwide jurisdiction in the First Circuit. For now, at least, multistate employers face continued uncertainty on the issue until courts of appeals in the remaining circuits weigh in.

Article By Maggie (Hanrahan) Santen, Monica Lacks, and Samuel H. Ottinger of Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

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© 2022, Ogletree, Deakins, Nash, Smoak & Stewart, P.C., All Rights Reserved.

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

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© 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.

 

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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.

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©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.

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

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.
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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

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