Tag: supreme court

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

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

BACKDROP: FAA SECTIONS AT ISSUE

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

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

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

PRELUDE: VADEN

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

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

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

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

OPENING ACTS: BADGEROW V. WALTERS IN THE LOWER COURTS

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

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

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

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

FEATURE: THE SUPREME COURT’S DECISION

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

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

SOUVENIR: THE KEY TAKEAWAYS

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

FOOTNOTES

1 9 U.S.C. § 4.

2 9 U.S.C. § 9.

3 9 U.S.C. § 10.

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

5 Id. at 1273.

6 Id. at 1269.

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

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

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

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

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

12 Badgerow, 2022 WL 959675, at *3.

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

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

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

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

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

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

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

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

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

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

Jackson Lewis P.C. © 2022

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

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

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

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

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

 

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

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

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

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

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

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

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

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

Commerce Clause Limits on States’ Authority to Regulate Commerce

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

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

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

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

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

The Scope of the Independent and Adequate State Ground Doctrine

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

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

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

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

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

Article By Kian Hudson of Barnes & Thornburg LLP

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

© 2022 BARNES & THORNBURG LLP

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

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

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

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

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

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

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

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

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

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

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

Copyright 2022 K & L Gates

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

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

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

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

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

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

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

District Court Declines to Dismiss 401(k) Fee Litigation Case in First Decision Post-Hughes

In the first decision since the Supreme Court’s ruling in Hughes v. Northwestern Univ., No. 19-1401, 595 U.S. ___ (U.S. Jan. 24, 2022) (discussed further here), a Georgia federal district court held in favor of plaintiffs and declined to dismiss allegations that defendant’s 401(k) plan included costly and underperforming funds and charged excessive recordkeeping fees. Specifically, plaintiffs alleged that defendants breached ERISA’s fiduciary duty of prudence by: (1) offering retail share class mutual funds despite the availability of identical lower-cost institutional share classes of these same funds; (2) including actively managed mutual funds which were more expensive than available passively managed funds; (3) selecting and maintaining underperforming funds; and (4) overpaying for recordkeeping services.

In declining to dismiss plaintiffs’ investment management fee claims, the district court relied heavily on Hughes. The court expressed its view that Hughes “suggested” that a defined contribution plan participant may state a prudence claim by merely alleging that the plan offered higher priced retail class mutual funds instead of available identical lower-cost institutional class funds. The district court also rejected defendant’s argument that plaintiffs’ claims should be dismissed in part because the plan offered a variety of investment options that participants could select, including lower-cost passive investment options. The district court explained that Hughes rejected this exact argument in holding that a fiduciary’s decisions are not insulated merely by giving participants choice over their investments and that fiduciaries have a continuing duty to monitor plan investments.

The court declined to dismiss plaintiffs’ recordkeeping claims because plaintiffs plausibly alleged that the plan paid nearly double the fees charged by similarly sized plans and that defendant failed to monitor those costs. In regards to plaintiffs’ underperformance claims, the court held that the existence and extent of the alleged underperformance was better left for summary judgment given the parties’ differing views on the issue.

Proskauer’s Perspective

While plaintiffs seemingly scored a victory in the first decision since Hughes, the decision does not indicate that this will (or should be) the trend. First, the district court issued its decision one day after Hughes was decided without the benefit of additional briefing, which would have likely included briefing on the Supreme Court’s direction that district courts give “due regard” to the reasons why a fiduciary made the challenged decisions. Second, the district court appears to have, at a minimum, over-emphasized the Supreme Court’s holding as to the plausibility of mutual fund retail share class claims; the Supreme Court did not hold directly or in dicta that a plaintiff may survive dismissal merely by alleging the availability of identical lower-cost mutual fund share classes.

The case is Goodman v. Columbus Reg’l Healthcare Sys., 2022 U.S. Dist. LEXIS 13489 (M.D. Ga. Jan. 25, 2022).

© 2022 Proskauer Rose LLP.
For more articles about 401(k) plans, visit the NLR Labor & Employment section.

Supreme Court to Address Role of “Prejudice” in Evaluating Waiver of Arbitrability

One of the best ways for companies facing media and privacy risk to protect themselves from expensive class action litigation is by including an arbitration provision in the applicable terms and conditions. While it’s not always clear at the outset of litigation whether the plaintiff agreed to the terms, companies often have to invoke arbitration quickly out of fear that they will be found to have waived arbitration. But in its coming term, the U.S. Supreme Court is now poised to address the critical point of whether prejudice to the plaintiff is a necessary element for a finding of waiver.

The Court agreed to decide whether prejudice is a required element in determining whether the right to arbitrate has been waived when it granted a Petition for Writ of Certiorari in Robyn Morgan v. Sundance, Inc. (No. 21-328). The case reached the Supreme Court after the Eighth Circuit found that Sundance, Inc., a company that owns over 150 Taco Bell franchises nationwide, did not waive its right to arbitrate the plaintiff’s claims, despite waiting almost eight months after the filing of her Complaint to move to compel arbitration.

There is, at a present, a circuit split on the question of whether prejudice plays a role in the waiver analysis. Nine out of the twelve federal circuit courts—the First, Second, Third, Fourth, Fifth, Sixth, Eighth, Ninth, and Eleventh Circuits—have explicitly found that prejudice is a required element to establish a waiver of the right to arbitrate. But the remaining three circuit courts—the Seventh, Tenth, and D.C. Circuits—have held that prejudice is not a required element.

In this case, the plaintiff, on behalf of herself and a proposed putative class, filed suit against Sundance on September 25, 2018 in the U.S. Southern District of Iowa, alleging that it had failed to pay employees for overtime hours worked in violation of the Fair Labor Standards Act. Because an action containing nearly identical allegations had been pending in the Eastern District of Michigan for nearly two years, Sundance first filed a motion to dismiss or stay the claims under Fed. R. Civ. P. 12(b)(3), which the District Court ultimately denied.

Thereafter, Sundance, plaintiff, and the plaintiffs in the Eastern District of Michigan action voluntarily attended mediation in an attempt to achieve a global resolution of the claims asserted against Sundance. Plaintiff’s claims were not resolved at the mediation, and three weeks later (nearly eight months after the case had been filed), Sundance moved to compel arbitration.

The motion to compel arbitration was filed before the parties attended an initial scheduling conference with the District Court and before the parties had engaged in any discovery. Nonetheless, the District Court denied the motion, finding that Sundance had waived its right to arbitration because it acted inconsistently with its right by invoking the “litigation machinery,” which prejudiced plaintiff.

The U.S. Court of Appeals for the Eighth Circuit reversed on appeal, finding that—in light of the totality of the circumstances—plaintiff had not been prejudiced by Sundance’s eight-month delay because, during that time, the parties were briefing the quasi-jurisdictional issue raised in the motion to dismiss or stay and then waiting on the District Court’s ruling on same, rather than litigating the merits of the claim.

Plaintiff sought review by the Supreme Court, asking it to answer the following question: “Does the arbitration specific requirement that the proponent of a contractual waiver defense prove prejudice violate this Court’s instruction [in , 563 U.S. 333, 339 (2011)] that lower courts must ‘place arbitration agreements on an equal footing with other contracts?’”

In response, Sundance argued that despite the apparent split, the Seventh, Tenth, and D.C. Circuits nonetheless consider prejudice in determining if the right to arbitrate has been waived. Per Sundance, “[a]t bottom, all of the Circuits are looking at the totality of the circumstances, as they should, in assessing waiver, and all are considering the existence of prejudice, whether as a mandatory or non-mandatory factor, as part of the assessment, based upon highly overlapping facts.”

Only time will tell whether the Supreme Court agrees, but we will continue to track and report on this case.

© 2022 Vedder Price

Article By Bryan Clark and Julia L. Koechley of  Vedder Price

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U.S. Supreme Court Lifts Preliminary Injunctions on Healthcare Worker Vaccine Mandate

On January 13, 2022, the United States Supreme Court upheld the Centers for Medicare & Medicaid Services (“CMS”) Interim Final Rule (the “Rule”) in a 5-4 decision, staying the preliminary injunctions issued for 24 states by the District Courts for the Eastern District of Missouri and the Western District of Louisiana.  Therefore, the CMS vaccine mandate is in full effect for all states except Texas, which was not part of the cases before the Court.  The Rule requires nearly all workers at Medicare- and Medicaid-certified facilities—whether medical personnel, volunteers, janitorial staff, or even contractors who service the facilities—to be fully vaccinated against COVID-19 unless they qualify for a medical or religious exemption.

The Court based its holding on two main points.  First, the Court held that Congress clearly authorized CMS to put conditions on funding it provides to the Medicare and Medicaid certified facilities.  The Court opined that perhaps CMS’s “most basic” function is to ensure that regulated facilities protect the health and safety of their patients, noting that Medicare and Medicaid patients are often some of the most vulnerable to infection and death from COVID-19.  Because CMS determined that a vaccine mandate is necessary to protect patient health and safety, the Court held the mandate “fits neatly within the language of the [authorizing] statute.”  The Court acknowledged that CMS has never required vaccinations in the past, but attributed this in part to the fact that states typically already require necessary vaccinations like hepatitis B, influenza, and measles for healthcare workers.

Second, the Court held that the mandate is not arbitrary and capricious, and cautioned the district courts that their role is merely to make sure an agency acts within the “zone of reasonableness.”  The Court found the administrative record sufficient to explain CMS’s rationale for the mandate and also accepted that getting the vaccine mandate in place ahead of winter and flu season satisfied the “good cause” standard for skipping the notice and comment period.

Healthcare employers subject to the Rule should immediately start implementing vaccine requirements if they have not already.  It is anticipated that in all states but Texas, CMS will likely begin enforcement of the vaccine mandate in approximately 30 days.  On December 28, 2021, CMS released guidance to state surveyors with enforcement standards to use starting 30 days from the memo, though at the time the memo only applied to the 25 states that were not enjoined.  Healthcare employers should also keep in mind that this is not the end of the road: the Court’s holding only means that the CMS vaccine mandate is in force while the 5th and 8th Circuits complete their review of the underlying state challenges to the mandate.  While the Supreme Court’s opinion sends a strong message that lower courts should uphold the mandate, there is no guarantee they will do so.

The legal landscape continues to evolve quickly and there is a lack of clear-cut authority or bright line rules on implementation.  This article is not intended to be an unequivocal, one-size-fits-all guidance, but instead represents our interpretation of where applicable law currently and generally stands.  This article does not address the potential impacts of the numerous other local, state and federal orders that have been issued in response to the COVID-19 pandemic, including, without limitation, potential liability should an employee become ill, requirements regarding family leave, sick pay and other issues.

Article By Keeley A. McCarty and Ashley T. Hirano of Sheppard, Mullin, Richter & Hampton LLP

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

Copyright © 2022, Sheppard Mullin Richter & Hampton LLP.

The Legal Challenges to the OSHA ETS and CMS Vaccine Mandate Move to the Supreme Court

On December 22, 2021, the Supreme Court of the United States issued orders granting review of legal challenges to the Occupational Safety and Health Administration’s COVID-19 Vaccination and Testing Emergency Temporary Standard (“OSHA ETS”) and the Centers for Medicare and Medicaid Services Omnibus COVID-19 Health Care Staff Vaccination Interim Final Rule (“CMS Vaccine Mandate”). In a rare move, the Supreme Court set an accelerated timeline for the cases, scheduling oral arguments in both cases on January 7, 2022.

Following a ruling out of the United States Court of Appeals for the Sixth Circuit on December 17, 2021, OSHA announced that it would not issue citations for non-compliance with any requirements of the OSHA ETS before January 10, 2022 and will not issue citations for noncompliance with testing requirements before February 9, 2022, so long as an employer is exercising reasonable, good faith efforts to come into compliance with the OSHA ETS. While it is unknown whether the Supreme Court will be able to issue a ruling by OSHA’s January 10, 2022 compliance date, the Supreme Court’s expedited schedule seems to indicate that it is attempting to give employers some finality concerning their obligations under the federal mandates.

Article By Lilian Doan Davis of Polsinelli PC

For more COVID-19 legal news, click here to visit the National Law Review.

© Polsinelli PC, Polsinelli LLP in California

Supreme Court to Consider Whether the FAA Mandates Arbitration of PAGA Actions

On Dec. 15, 2021, the United States Supreme Court granted certiorari in Viking River Cruises, Inc. v. Moriana, and likely will decide by summer 2022 whether the Federal Arbitration Act (FAA) preempts California public policy and requires enforcement of arbitration agreements that purport to waive an employee’s ability to pursue representative actions under the California Private Attorneys General Act (PAGA). Employers have been waiting for the Supreme Court to take up this issue and are watching the case with interest.

Currently, per the California Supreme Court’s decision in Iskanian v. CLS Transportation Los Angeles, LLC, arbitration agreements that waive an employee’s right to pursue PAGA representative actions are considered void and unenforceable. In Iskanian, the California Supreme Court held the FAA does not preempt California state law prohibiting prospective PAGA waivers because PAGA actions are between the employer and the state, not the employee. Thus, the state of California is the real party in interest, not the employee bringing suit, and although the employee may have executed a binding arbitration agreement, the state of California did not. Thus, arbitration agreements that purport to waive the right, expressly or otherwise, to bring a PAGA representative action are not enforceable.

In Viking River, the employee filed a PAGA representative action seeking civil penalties for various alleged violations of the California Labor Code, despite signing an arbitration agreement with her employer agreeing to resolve all future employment-related disputes with the employer via individual arbitration. Relying on the agreement, the employer moved to compel the action to arbitration. The trial court denied the motion, and the Court of Appeal affirmed the denial citing California state law as articulated in Iskanian. The California Supreme Court subsequently denied the employer’s petition for review.

Viking River then petitioned the U.S. Supreme Court for certiorari, relying on the Supreme Court’s decisions in AT&T Mobility LLC v. Concepcion and Epic Systems Corp. v. Lewis. These decisions held that courts may not disregard bilateral arbitration agreements or reshape traditional individualized arbitration by mandating class-wide arbitration procedures without all parties’ consent. Viking River argued the Supreme Court needed to review the case to reaffirm the FAA and national policy in favor of arbitration. Viking River further argued review was necessary to ensure that Concepcion and Epic promote bilateral arbitration, rather than simply result in “representational litigation” under PAGA by those who agreed to arbitrate individually. In granting review, the Supreme Court will decide “[w]hether the Federal Arbitration Act requires enforcement of a bilateral arbitration agreement providing that an employee cannot raise representative claims, including under PAGA.”

This will be a closely watched decision for both sides of the bar and will likely have a groundbreaking effect on California employment litigation. Should the Supreme Court decide in Viking River’s favor, PAGA-only actions, which have become the preference of California plaintiffs’ attorneys in the face of arbitration agreements containing class action waiver provisions, will largely become a thing of the past for those employers who mandate individual arbitration for employees. Although it is by no means certain how the Supreme Court will decide this issue, employers should certainly be ready to revisit any arbitration agreements with California employees and consider what if any changes the ultimate ruling may warrant.

Article By Ashley M. Farrell Pickett and Radha D.S. Kulkarni of Greenberg Traurig, LLP

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