Tag: supreme court

U.S. Supreme Court Rules That An SEC Enforcement Claim For Disgorgement Is Subject To A Five-Year Statute Of Limitations

Today, the U.S. Supreme Court unanimously held that any claim for disgorgement in an SEC enforcement action must be commenced within five years of the date the claim accrued. The decision in Kokesh v. SEC, No. 16-529, resolved a split among Courts of Appeals whether the statute of limitations that applies to SEC enforcement actions seeking a penalty or forfeiture (28 U.S.C. § 2462) applies when disgorgement is sought. The Court had earlier applied that statute of limitations to claims by the SEC seeking a civil monetary penalty, and held that the limitations period begins to run when the violation occurs, not when it is discovered by the government. Gabelli v. SEC, 568 U.S. 442 (2013).

Supreme Court SCOTUS Class-Action WaiverThe five-year statute of limitations applies to “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture.” The Court held that the imposition of disgorgement in an SEC enforcement action is a “penalty,” thus subject to the five-year limitations period. In reaching that conclusion, the Court noted that disgorgement is imposed as a consequence of violation of a public law, not because some individual was aggrieved. Another element of the Court’s reasoning was that when disgorgement is ordered in an enforcement action the remedy is not compensatory. Instead, disgorged profits are paid to the court, and it is within the discretion of the court to determine how and to whom the money will be distributed.

Perhaps most important among the Court’s rationales, the primary purpose of disgorgement ordered in an enforcement action is deterrence, and sanctions imposed to deter infractions of public laws are “inherently punitive.” The Court noted that the amount paid is often greater than the defendant’s gain so that the defendant is not, in all cases, merely restored to the status it would have occupied had it not broken the law.

The oral argument in the case included considerable colloquy on the source of a court’s power to order disgorgement in an SEC enforcement action. In its decision the Court stated, “Nothing in this opinion should be interpreted as an opinion on whether courts possess authority to order disgorgement in SEC enforcement proceedings . . . .” (Slip Op., p. 5, n. 3)

The obvious effect of the decision will be to require the SEC to be expeditious in filing cases seeking not only civil monetary penalties but also, now, disgorgement. The Court did not address whether the remedy of an injunction, which often has collateral consequences for the defendant, or of declaratory relief is subject to this statute of limitations. The Court also did not discuss the effect a tolling agreement would have on the running of the statute.

This post was written by Allan Horwich of Schiff Hardin LLP.

Unanimous Supreme Court Decision in Favor of “Church Plan” Defendants

Today, the Supreme Court handed a long-awaited victory to religiously affiliated organizations operating pension plans under ERISA’s “church plan” exemption. In a surprising 8-0 ruling, the Court agreed with the Defendants that the exemption applies to pension plans maintained by church affiliated organizations such as healthcare facilities, even if the plans were not established by a church. Justice Kagan authored the opinion, with a concurrence by Justice Sotomayor.  Justice Gorsuch, who was appointed after oral argument, did not participate in the decision.  The opinion reverses decisions in favor of Plaintiffs from three Appellate Circuits – the Third, Seventh, and Ninth.

For those of you not familiar with the issue, ERISA originally defined a “church plan” as “a plan established and maintained . . . for its employees . . . by a church.”   Then, in 1980, Congress amended the exemption by adding the provision at the heart of the three consolidated cases.  The new section provides: “[a] plan established and maintained . . . by a church . . . includes a plan maintained by [a principal-purpose] organization.”  The parties agreed that under those provisions, a “church plan” need not be maintained by a church, but they differed as to whether a plan must still have been established by a church to qualify for the church-plan exemption.

The Defendants, Advocate Health Care Network, St. Peter’s Healthcare System, and Dignity Health, asserted that their pension plans are “church plans” exempt from ERISA’s strict reporting, disclosure, and funding obligations.  Although each of the plans at issue was established by the hospitals and not a church, each one of the hospitals had received confirmation from the IRS over the years that their plans were, in fact, exempt from ERISA, under the church plan exemption because of the entities’ religious affiliation.

The Plaintiffs, participants in the pension plans, argued that the church plan exemption was not intended to exempt pension plans of large healthcare systems where the plans were not established by a church.

Justice Kagan’s analysis began by acknowledging that the term “church plan” initially meant only “a plan established and maintained . . . by a church.” But the 1980 amendment, she found, expanded the original definition to “include” another type of plan—“a plan maintained by [a principal-purpose] organization.’”  She concluded that the use of the word “include” was not literal, “but tells readers that a different type of plan should receive the same treatment (i.e., an exemption) as the type described in the old definition.”

Thus, according to Justice Kagan, because Congress included within the category of plans “established and maintained by a church” plans “maintained by” principal-purpose organizations, those plans—and all those plans—are exempt from ERISA’s requirements. Although the DOL, PBGC, and IRS had all filed a brief supporting the Defendants’ position, Justice Kagan mentioned only briefly the agencies long-standing interpretation of the exemption, and did not engage in any “Chevron-Deference” analysis.  Some observers may find this surprising, because comments during oral argument suggested that some of the Justices harbored concerns regarding the hundreds of similar plans that had relied on administrative interpretations for thirty years.

In analyzing the legislative history, Justice Kagan aptly observed, that “[t]he legislative materials in these cases consist almost wholly of excerpts from committee hearings and scattered floor statements by individual lawmakers—the sort of stuff we have called `among the least illuminating forms of legislative history.’” Nonetheless, after reviewing the history, and as she forecasted by her questioning at oral argument (see our March 29, 2017 Blog, Supreme Court Hears “Church Plan” Erisa Class Action Cases), Justice Kagan rejected Plaintiffs’ argument that the legislative history demonstrated an intent to keep the “establishment” requirement.  To do so “would have prevented some plans run by pension boards—the very entities the employees say Congress most wanted to benefit—from qualifying as `church plans’…. No argument the employees have offered here supports that goal-defying (much less that text-defying) statutory construction.”

In sum, Justice Kagan held that “[u]nder the best reading of the statute, a plan maintained by a principal-purpose organization therefore qualifies as a `church plan,’ regardless of who established it.”

Justice Sotomayor filed a concurrence joining the Court’s opinion because she was “persuaded that it correctly interprets the relevant statutory text.” Although she agreed with the Court’s reading of the exemption, she was “troubled by the outcome of these cases.”  Her concern was based on the notion that “Church-affiliated organizations operate for-profit subsidiaries, employee thousands of people, earn billions of dollars in revenue, and compete with companies that have to comply with ERISA.”  This concern appears to be based on the view that some church-affiliated organizations effectively operate as secular, for-profit businesses.

Takeaways:

  • Although this decision is positive news for church plans, it may not be the end of the church plan litigation.  Numerous, large settlements have occurred before and since the Supreme Court took up the consolidated cases, and we expect some will still settle, albeit likely for lower numbers.
  • In addition, Plaintiffs could still push forward with the cases on the grounds that the entities maintaining the church plans are not “principal-purpose organizations” controlled by “a church.”

René E. Thorne and Charles F. Seemann III of Jackson Lewis P.C..

U.S. Supreme Court Holds That Patent Act Does Not Provide Laches Remedy for Limiting Damages

supreme court patent act lachesThe U.S. Supreme Court took on the analysis of laches in a March 2017 decision in SCA Hygiene Products Aktiebolag, et al., v. First Quality Baby Products, LLC, et. al. The Supreme Court held that the equitable doctrine of laches cannot be invoked as a defense against a claim for damages brought within the six-year limitations period of 35 U.S.C. § 286 – and further held that such a remedy is not codified in 35 U.S.C. § 282.

Effectively, this holding eliminates the potential for a defendant to argue under the doctrine of laches that a plaintiff in a patent infringement action unreasonably delayed bringing the patent infringement action and allows the plaintiff to recover damages over the previous six-year period, regardless of when the plaintiff became aware of the infringement or the length of time the infringement has occurred.

Before SCA, the analysis of the remedy of laches in limiting patent damages was controlled by the holding in A.C. Auckerman Co. v. R.L. Chaides Constr. Co., 990 F.2d 1020, 1030 (Fed.Cir. 1992). In Auckerman, the Federal Circuit held that § 282 recognized a laches defense in harmony with § 286 as the laches defense “invokes the discretionary power of the court to limit the defendant’s liability for infringement by reason of the equities between the particular parties.” In this recent case, First Quality argued that Congress had implicitly ratified the proposition that § 282 includes a laches defense by leaving the language of § 282 untouched after this interpretation of § 282 had been applied by lower courts. The Supreme Court rejected the premise that the remedy of laches was codified by § 282, holding that the period of limitation codified in § 286 by Congress “reflects a congressional decision that the timeliness of covered claims is better judged on the basis of a generally hard and fast rule rather than the sort of case-specific judicial determination that occurs when a laches defense is asserted.” The Supreme Court found that Congress’ clear establishment of the period of reasonableness for bringing a patent infringement claim is reflected in the language of § 286, which reads, in part:

Except as otherwise provided by law, no recovery shall be had for any infringement committed more than six years prior to the filing of the complaint or counterclaim for infringement in the action.

The Supreme Court’s holding was not unexpected and the reasoning followed the court’s holding in Petrella v. Metro-Goldwyn-Mayer, Inc., 134 S. Ct. 1962 (2014), which addressed similar language in the Copyright Act and confirmed that laches was not available as a defense during the codified limitation period of three years. In SCA, the Supreme Court found no reason to disregard the general rule that laches does not apply to damages suffered within the period of a statute of limitations in the specific context of a patent infringement suit.

The ruling in SCA will now allow a patent owner to wait to bring an infringement suit without concern for it being found that it waited an unreasonably long. For example, a patent owner may wait until the accumulated damages by a putative infringer have grown to an amount that makes filing a suit more attractive financially. It should be noted that the § 286 period of limitation is on the recovery of damages and does not bar bringing suit at any time during the period of enforceability of the patent. The patent owner, absent some other limitation on damages available to the putative infringer, may wait for any amount of time during the period of enforceability of the patent and bring suit.

Notably, this decision does not address the equitable principle of estoppel, which was also at issue in the case, but not part of the appeal. The ruling also does not change the effect of the various limitations on damages codified in 35 U.S.C. § 287.

ARTICLE BY Intellectual Property Department Barnes Thornburg
© 2017 Barnes & Thornburg LLP

How Does Supreme Court’s Remand of Transgender Discrimination Case Impact Wage-and-Hour Class Actions?

supreme court transgender discriminationOn March 6, 2017, the Supreme Court, in a one-sentence summary disposition, remanded the case of Gloucester County Sch. Bd. v. G.G. to the U.S. Court of Appeals for the Fourth Circuit “for further consideration in light of the guidance document issued by the Department of Education and Department of Justice on February 22, 2017.”  For those unfamiliar with Gloucester County, the case involves a public school’s obligations to a transgender student under Title IX and, in particular, whether Title IX’s prohibition against sex discrimination requires a school to treat transgender students consistent with their gender identity when providing sex-separated facilities, such as toilets, locker rooms, and showers.

So what does this have to do with wage-and-hour class actions?  As it turns out, in Gloucester County, the Supreme Court was poised to consider the scope, and perhaps the continuing viability, of the Auer doctrine, which frequently comes into play in wage-and-hour litigation.  Under the Auer doctrine, courts generally will enforce an agency’s interpretation of its own regulations unless that interpretation is “plainly erroneous or inconsistent with the regulation.”  In wage-and-hour class actions, this often results in cases being decided based on guidance issued by the Department of Labor through opinion letters, its Field Operations Handbook, and other sources.

This deference to the Department of Labor can be frustrating for employers and attorneys practicing wage-and-hour law because the guidance issued by the Department of Labor often changes with each new Presidential administration.  For example, an entire industry can decide to classify a group of employees as exempt from the FLSA’s overtime requirements based on an opinion letter from the Department of Labor only to learn years later that the Department has withdrawn the opinion letter after the start of a new administration.  If courts are obligated under Auer to defer to these shifting interpretations issued by the Department of Labor, it can create a great deal of uncertainty for employers seeking to comply with the FLSA and for parties litigating wage-and-hour class actions.

In the long term, eliminating or narrowing the Auer doctrine could provide more consistency for employers and litigants.  With the remand of Gloucester County, that is unlikely to happen in the near future.  In the short term, however, the continuing viability of the Auer doctrine may benefit employers who are hopeful that the Department of Labor, under the Trump administration, will take a more employer-friendly view of certain regulations.  For now, the Department of Labor remains free to shape FLSA through opinion letters and other guidance documents and without having to resort to the time-consuming process of issuing revised regulations.

ARTICLE BY Jeffrey L. Rudd  of Jackson Lewis P.C.

Jackson Lewis P.C. © 2017

Waiting for Gorsuch: SCOTUS Kicks Important Class Action Waiver Case to Next Term

Supreme Court SCOTUS Class Action WaiverLast week, the United States Supreme Court informed litigants in Epic Systems Corp. v. Lewis that it is pushing the case to its October 2017 term. The lawsuit, which rose up through the Western District of Wisconsin and the Seventh Circuit, presents the High Court with a chance to resolve a robust circuit split on the question whether mandatory arbitration clauses in employment contracts may contain class action waivers without running afoul of the National Labor Relations Act (NLRA). Last spring, the Seventh Circuit ruled that such clauses were unenforceable, deviating from rulings by the Second, Fifth, and Eighth Circuits, and prompting the Supreme Court to grant certiorari on January 13, 2017.

The resolution of the issue turns on whether NLRA Section 7’s (29 U.S.C. § 157) protection of employees’ right to engage in “concerted activities” qualifies as a “contrary congressional command” (under CompuCredit Corp. v. Greenwood, 132 S. Ct. 665, 669 (2012)) sufficient to override the Federal Arbitration Act’s (FAA) presumption that arbitration agreements are enforceable as written. The National Labor Relations Board (NLRB) has taken the position for years that class action waivers in employment agreements are unenforceable under the NLRA. See D.R. Horton, Inc., 357 N.L.R.B. 2277, 2289 (2012).  In Lewis, Judge Barbara Crabb of the Western District of Wisconsin followed the NLRB’s interpretation, based on Supreme Court precedent directing courts to give “considerable deference” to the agency’s interpretations of the NLRA. Lewis, No. 15-cv-82-bbc, 2015 U.S. Dist. LEXIS 121137, at *4 (W.D. Wis. Sept. 11, 2015) (quoting ABF Freight System, Inc. v. NLRB, 510 U.S. 317, 324 (1994)).

On appeal, the Seventh Circuit ruled that such class action waivers were “illegal” under the NLRA, making them unenforceable because the FAA contains a “savings clause” that allows courts to refuse to recognize arbitration agreements on grounds sufficient “for the revocation of any contract.” Lewis, 823 F.3d 1147, 1159 (7th Cir. 2016) (quoting 9 U.S.C. § 2). The Seventh Circuit acknowledged that its decision departed from precedents in its sister circuits but dismissed their reasoning. Following Lewis, a divided Ninth Circuit panel joined the Seventh Circuit, deepening the circuit split and teeing the issue up for Supreme Court review.

Because the case has now been deferred until next term, President Trump’s recent nomination of Judge Neil Gorsuch leads inquisitive minds to wonder about his jurisprudence on the FAA. With the Supreme Court’s present four-to-four ideological split, Judge Gorsuch’s vote may well decide the case. The 10th Circuit has not weighed in on the enforceability of class action waivers in employment agreements, but Judge Gorsuch’s opinions on the FAA demonstrate a commitment to enforcing its preference for arbitration.

Just a few weeks ago, in Ragab v. Howard, 841 F.3d 1134 (10th Cir. 2016), Judge Gorsuch penned a dissent from a panel decision that affirmed denial of a motion to compel arbitration. The parties in Ragab agreed to six business contracts with one another, each containing a separate (and contradictory) mandatory arbitration provision, which led the panel to rule that the parties failed to reach agreement on the essential terms regarding arbitration. In his dissent, Judge Gorsuch opined that the parties’ verbal cacophony regarding the procedural details of arbitration did not override their clear intention to arbitrate. His dissent identified two “workarounds” to save the arbitration agreements and alluded to the preemptive force of the FAA over state law. Id. at 1139, 1141. And, in Sanchez v. Nitro-Lift Techs., L.L.C., 762 F.3d 1139 (10th Cir. 2014), Judge Gorsuch joined an opinion requiring three former employees to arbitrate their wage claims against their employer, despite ambiguity in the parties’ arbitration agreement, based on the “liberal federal policy favoring arbitration.” Id. at 1145, 1147-48.

Furthermore, Judge Gorsuch has expressed deep skepticism regarding deference to administrative agencies. Back in August, he authored not one but two opinions in a case called Gutierrez-Brizuela v. Lynch, 834 F.3d 1142 (10th Cir. 2016). In his opinion for the court, Judge Gorsuch ruled that the Board of Immigration Appeals could not apply a new administrative rule retroactively. Id. at 1148. Then, in a separate concurring opinion, he called on the Supreme Court to reconsider the doctrine of Chevron deference to administrative agencies, calling the precedent a “behemoth” of administrative law that was “more than a little difficult to square with the Constitution of the framers’ design.” Id. at 1149. This suggests that the NLRB’s anti-class waiver position may not carry much deferential heft with Judge Gorsuch.

So, while it appears that employers across the country will need to hold tight for a few months longer to see whether the class action waivers in their employment agreements hold water, the wait could be worthwhile for those looking to avoid class adjudication.

ARTICLE BY Aaron R. Wegrzyn of Foley & Lardner LLP

© 2017 Foley & Lardner LLP

Judge Gorsuch’s Opinion in Whistleblower Case Reveals the Dishonesty of his Alleged Strict Textualism

Neil Gorsuch Supreme CourtIf Judge Neil Gorsuch is confirmed, he will play a critical role in construing laws that protect worker health and safety, including laws protecting whistleblowers who suffer retaliation for opposing illegal or unsafe conduct that jeopardizes public health and safety. According to the Bureau of Labor Standards, 4836 workers were killed on the job in 2015—on average, that’s more than 93 a week, or more than 13 deaths every day. As the Occupational Safety and Health Administration (“OSHA”) is already severely understaffed and will soon be further weakened by a political appointee charged with gutting it, the last thing workers need is an activist judge who has expressed disdain for worker-protection laws. But that is exactly what we can expect from Judge Gorsuch.

In a recent dissent in TransAm Trucking, Inc. v. Administrative Review Board, 833 F.3d 1206 (10th Cir. 2016), Judge Gorsuch demonstrated that he will construe worker-protection laws as narrowly as possible and that he deems worker “health and safety” as “ephemeral and generic” statutory goals.  His opinion also reveals that his alleged values-neutral approach to statutory construction is intellectually dishonest.  The majority decision affirming the whistleblower’s win at the Department of Labor was based on the plain meaning of the statute, well-established precedent construing the statutory term at issue, and the purpose of the statute.  Judge Gorsuch’s dissent, however, was arguably activist in that it rewrites the statute.  In other words, Judge Gorsuch does not check his policy preferences or values at the courthouse door and render value-neutral decisions based on the dictionary definitions of statutory terms.  Instead, as this opinion demonstrates, his alleged strict textualism appears to be a cloak for his policy preferences, including his apparent disdain for worker protection laws.

Background of TransAm Trucking Whistleblower-Retaliation Case

Alphonse Maddin worked as a truck driver for TransAm Trucking, Inc. (“TransAm”). He was driving a tractor-trailer down an Illinois freeway on a subzero night in 2009, when he noticed that his truck was nearly out of gas. He pulled over because he could not find a fuel station, and ten minutes later, the trailer’s brakes locked up due to the frigid temperatures. Mr. Maddin was unable to resume driving the tractor-trailer and reported the truck’s unsafe condition to a TransAm dispatcher. The dispatcher told Mr. Maddin that a repairperson would be sent to fix the brakes.

Mr. Maddin dozed off briefly and awoke to find that his torso was numb and he could not feel his feet. He told the dispatcher about his physical condition and asked when the repairperson would arrive. “[H]ang in there,” the dispatcher responded.

Half an hour later, Mr. Maddin called his supervisor, Larry Cluck, and told Mr. Cluck that his feet were going numb and that he was having difficulty breathing. Mr. Cluck told Mr. Maddin not to leave the trailer and gave him two options: drag the trailer with inoperable brakes, or stay put until the repairperson arrives. Mr. Maddin knew that dragging the trailer is illegal and concluded that he might not live much longer if he were to wait for a repairperson. So, Mr. Maddin unhitched the trailer and drove off.

Fifteen minutes after Mr. Maddin left—i.e., more than three hours after he first notified TransAm that he was stranded in subzero temperatures—the repairperson arrived. Mr. Maddin drove the truck back to meet the repairperson, who then fixed the trailer’s brakes. Less than a week later, TransAm terminated Mr. Maddin’s employment for abandoning the trailer.

Mr. Maddin filed a complaint with OSHA, alleging that TransAm violated the whistleblower provisions of the Surface Transportation Assistance Act (“STAA”) by firing him. OSHA dismissed the claim, but a Department of Labor (“DOL”) administrative-law judge (“ALJ”) later ruled, after a hearing, that TransAm violated the STAA. TransAm appealed, and the DOL Administrative Review Board (“ARB”) affirmed.

Mr. Maddin’s STAA Whistleblower-Retaliation Claim

The relevant STAA provision prohibits an employer from firing an employee who “refuses to operate a vehicle because . . . the employee has a reasonable apprehension of serious injury to the employee or the public because of the vehicle’s hazardous safety or security condition.” TransAm Trucking, 833 F.3d at 1211 (alteration in original) (quoting 49 U.S.C. § 31105(a)(1)(B)(ii)). An employee’s apprehension is “reasonable” if a reasonable person in the same circumstances “would conclude that the hazardous safety or security condition establishes a real danger of accident, injury, or serious impairment to health.” Id. (quoting § 31105(a)(2)). To prevail under this provision, an employee must demonstrate that he or she “sought from the employer, and [was] unable to obtain, correction of the hazardous safety or security condition.” Id. (alteration in original) (quoting § 31105(a)(2)).

The ALJ found, and the ARB affirmed, that Mr. Maddin had engaged in protected conduct when he unhitched the trailer and “refused to operate the truck under the conditions set by Mr. [C]luck.” Id. (alteration in original). TransAm argued, on appeal, that this finding was in error because Mr. Maddin had not “refused to operate” the truck but rather in fact “operated” the truck when he drove off without the trailer.

The Tenth Circuit engaged in a Chevron analysis to determine whether to defer to the ARB’s interpretation of the STAA. Because the statute does not define “operate,” the Tenth Circuit found that Congress had not “directly spoken to the precise question at issue.” Id. (quoting Chevron, U.S.A., Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 842 (1984)). Therefore, the Tenth Circuit turned to the question whether the ARB’s interpretation was “based on a permissible construction of the statute.” Id. (quoting Chevron, 467 U.S. at 843).

TransAm argued, in effect, that “operate” was synonymous with “drive.” The ARB, on the other hand, interpreted “operate” to encompass driving as well as “other uses of a vehicle when it is within the control of the employee.” Id.

The Tenth Circuit looked to the purpose of the STAA whistleblower provisions—to “encourage employee reporting of noncompliance with safety regulations governing commercial motor vehicles.” Id. at 1212 (quoting Brock v. Roadway Express, Inc., 481 U.S. 252, 258 (1987)). The court found that the ARB’s interpretation of “operate,” and not TransAm’s, furthered that purpose because it “prohibit[ed] an employer from discharging an insubordinate employee whose insubordination was motivated by the employee’s reasonable apprehension of serious injury to himself or members of the public.” Id.

Therefore, the Tenth Circuit deferred to the ARB’s interpretation of “operate” and affirmed the ARB’s finding that Mr. Maddin’s unhitching the trailer and driving away in the truck, against his supervisor’s instructions, constituted a “refusal to operate” and so was protected conduct under the STAA. Id. at 1213. The court explained that “although Maddin actually drove the truck after unhitching it, he refused to operate his tractor-trailer in the manner instructed by his employer.” Id.

The Tenth Circuit found, moreover, that Mr. Maddin’s protected activity was a contributing factor in his firing. Id. Having found that the ARB’s findings—that Mr. Maddin engaged in STAA-protected conduct and was fired for doing so—were supported by substantial evidence, the Tenth Circuit denied TransAm’s petition for review.

Judge Gorsuch’s Dissent

Judge Gorsuch took issue with the ARB’s, and the majority’s, interpretation of “refusal to operate”:

The trucker in this case wasn’t fired for refusing to operate his vehicle. Indeed, his employer gave him the very option the statute says it must: once he voiced safety concerns, TransAm expressly—and by everyone’s admission—permitted him to sit and remain where he was and wait for help. The trucker was fired only after he declined the statutorily protected option (refuse to operate) and chose instead to operate his vehicle in a manner he thought wise but his employer did not. And there’s simply no law anyone has pointed us to giving employees the right to operate their vehicles in ways their employers forbid.

Id. at 1215–16 (Gorsuch, J., dissenting). Judge Gorsuch said the majority should not have even engaged in a Chevron analysis because the STAA is “perfectly plain.”

Relying on the Oxford English Dictionary, Judge Gorsuch found that “refuse” means “[t]o decline positively, to express or show a determination not to do something”; and “operate” means “[t]o cause or actuate the working of; to work (a machine, etc.).” Id. at 1216 (Gorsuch, J., dissenting) (alterations in original) (quoting The Oxford English Dictionary 495, 848 (2d ed. 1989)). Putting those two definitions together, Judge Gorsuch concluded that, under the STAA, “employees who voice safety concerns about their vehicles may decline to cause those vehicles to work without fear of reprisal” but may not “cause those vehicles to work in ways they happen to wish but an employer forbids.” Id. (Gorsuch, J., dissenting).

To illustrate the alleged absurdity of the majority’s contrary interpretation, Judge Gorsuch used an analogy: “Imagine a boss telling an employee he may either ‘operate’ an office computer as directed or ‘refuse to operate’ that computer. What serious employee would take that as license to use an office computer not for work but to compose the great American novel? Good luck.” Id. at 1217 (Gorsuch, J., dissenting).

Judge Gorsuch then criticized the majority for its reliance on the STAA’s purpose of protecting public health and safety. In a statement revealing his policy preferences, Judge Gorsuch said that, particularly where a statute’s purpose is as “ephemeral and generic” as “health and safety,” the majority should stick strictly to the text of the statute. Id. (Gorsuch, J., dissenting).

Judge Gorsuch’s Dissent Reveals the Intellectual Dishonesty of his Alleged Strict Textualism

Read in isolation, Judge Gorsuch’s dissent sounds plausible. He takes a strict textualist approach to statutory interpretation and so rejects any consideration of legislative intent. But a closer examination reveals that his alleged use of textualism is really a cloak for his policy preferences.

Here, Judge Gorsuch purportedly relies on the Oxford English Dictionary to support his conclusion that “operate” means, by definition, “[t]o cause or actuate the working of; to work (a machine, etc.).” And the rest of his analysis follows naturally. But the same textualist approach was also relied upon by the majority to reach a contrary conclusion, one that is consistent with the purpose of the statute:

The dissent believes Congress’s intent can be easily determined by simply choosing a favorite dictionary definition of the word and applying that to quickly conclude the statute is not ambiguous at all. . . .

. . . We, too, have found a dictionary definition of the word “operate” and discovered it means to “control the functioning of.” This definition clearly encompasses activities other than driving. . . . The only logical explanation [for the dissent’s interpretation] is that the dissent has concluded Congress used the word “operate” in the statute when it really meant “drive.” We are more comfortable limiting our review to the language Congress actually used. 

Id. at 1212 n.4 (emphasis added) (quoting Operate, Oxford Dictionaries Pro, http://www.oxforddictionaries.com/us/definition/american_english/operate).

Judge Gorsuch artfully concealed the discretion inherent in his analysis, and in doing so maintained the facade of being bound by the text of the STAA. Here, he used his discretion to conclude that an employee’s firing did not violate the STAA—even though that employee spent more than three hours in subzero temperatures, without heat, after notifying his employer that his trailer’s brakes had frozen—because the employee’s actions did not meet Judge Gorsuch’s cherry-picked definition of refusal to “operate.”

Instead of taking statutory text out of context, Judge Gorsuch could have relied upon well-established STAA precedent holding that an employee who moves a disabled trailer from the middle of a busy roadway to the shoulder of the road, after being told by his employer to remain in the roadway, has refused to operate his vehicle for purposes of the STAA whistleblower law. He could also consider the purpose of the statute the majority relies upon: “to promote the safe operation of commercial motor vehicles,” “to minimize dangers to the health of operators of commercial motor vehicles,” and “to ensure increased compliance with traffic laws and with . . . commercial motor vehicle safety and health regulations and standards.” 49 U.S.C. § 31131(a).

Judge Gorsuch’s dissent fails to address the fact that Mr. Maddin’s supervisor gave him another option other than waiting in the truck without heat—dragging a 41,000-pound trailer with inoperable brakes, which is prohibited by Department of Transportation regulations. Mr. Maddin refused to carry out that instruction, and therefore he is protected under the STAA. And Judge Gorsuch’s dissent does not address the ARB’s finding that Mr. Maddin engaged in STAA-protected conduct by reporting the faulty condition of the trailer (i.e., the frozen brakes).

Judge Gorsuch will likely testify at his confirmation hearing that he is a values-neutral umpire who interprets statutes according to their plain meaning. Here, the umpire had two choices in a case decided under substantial-evidence review—a standard of review that is highly deferential to the agency. Option One was to rely on the majority’s equally compelling dictionary definition that favored the worker, the purpose of the STAA whistleblower law, well-established case precedent construing the STAA, and common sense. Option Two was to rely upon an out-of-context dictionary definition to reverse the agency, while omitting key facts from the record and ignoring case precedent and the purpose of the statute. Is it a mere coincidence that Option Two favored the employer and left the worker out in the cold? It strains credulity to claim that the author of this dissent is merely calling balls and strikes.

Judge Gorsuch’s Derision of Worker-Protection Laws

Perhaps more revealing than Judge Gorsuch’s selective use of the dictionary, however, are his characterization of “health and safety” as “ephemeral and generic” statutory goals, as well as the wording and tone of his dissent. Judge Gorsuch refuses to consider the purpose of the STAA whistleblower-protection law because “[a]fter all, what under the sun, at least at some level of generality, doesn’t relate to ‘health and safety’?” TransAm Trucking, 833 F.3d at 1217 (Gorsuch, J., dissenting). If Judge Gorsuch were construing the Religious Freedom Restoration Act, however, he would very likely consider and apply the purpose of the statute.  But according to Judge Gorsuch, the remedial goals of worker-protection laws should be ignored when construing those laws.

Note that in his dissent, Judge Gorsuch does not once refer to Mr. Maddin by name. Instead, he refers to Mr. Maddin repeatedly as a “trucker” and once as an “employee.” TransAm, on the other hand, is identified by name several times throughout the dissent. Moreover, Judge Gorsuch states that Mr. Maddin was stranded in “cold weather” and omits the fact that Mr. Madden was stuck in a truck, without heat, in subzero weather, and feared losing his feet, dying, and never seeing his family again. Minimizing Mr. Maddin’s precarious predicament enabled Judge Gorsuch to analogize Mr. Maddin’s conduct to that of an office worker who misused a work computer to “compose the great American novel.” Id. (Gorsuch, J., dissenting). But presumably, the officer worker’s appendages are not going numb in this irrelevant analogy. Given Judge Gorsuch’s dehumanization of Mr. Maddin, it is no surprise that he admits in his dissent that he deems “health and safety” to be “ephemeral and generic” statutory goals.

According to the National Highway Traffic Safety Administration, there were approximately 3500 fatal crashes involving large trucks from 2011–2014. There is nothing “ephemeral” about laws regulating the safe operation of tractor-trailers or a whistleblower-protection law that enables truck drivers to refuse to drive unsafe vehicles. As Judge Gorsuch sat comfortably in his chambers, penning his dissent, did it occur to him that human lives are at stake when TransAm orders a driver to drag a 41,000-pound trailer with frozen brakes? Did this “pro-life” jurist consider that Mr. Maddin was having difficulty breathing and his appendages were going numb when he pleaded with his supervisor for permission to drive the truck, without the trailer, to a nearby gas station? Apparently, all those considerations, along with the purpose of the statute, are irrelevant where a cherry-picked dictionary definition enables Judge Gorsuch to construe a remedial law narrowly enough for the employer to prevail. If Judge Gorsuch is really acting as a values-neutral umpire, why does he deride the purpose of the STAA whistleblower-protection law as “ephemeral” and “generic”?

Many American workers often face the daunting choice of engaging in unsafe practices on the job or instead losing their jobs for opposing such practices. Federal enforcement of worker-safety and worker-protection laws is already feeble due to Congress’s deliberately starving OSHA of resources. And with a new Administration committed to gutting worker-safety laws and enforcement thereof, we can expect that the current unacceptable number of workers killed on the job—4836 in 2015—will increase. Judge Gorsuch’s dissent in TransAm Trucking portends that such laws will be further crippled using sham textualism.

Undoubtedly Judge Gorsuch is a talented jurist and dedicated public servant. But the “forgotten man” that President Trump claims to represent would be far better served by a mainstream jurist, such as Judge Merrick Garland, who would be faithful to the statutory language and purpose of worker-protection laws.

ARTICLE BY Jason Zuckerman of Zuckerman Law
© 2017 Zuckerman Law

Supreme Court Solicits Opinions on Breadth of Remedies under ERISA—Including Indemnity and Contribution

Supreme Court ERISA RemediesEarlier this week, the Supreme Court got back to work in the New Year. One of the court’s first orders of business was to invite the Acting Solicitor General to file a brief expressing the views of the United States in a handful of cases. Fenkell v. Alliance Holdings, Inc., a somewhat controversial ERISA case, landed amongst the chosen few. Specifically under Fenkell, the Supreme Court invited the Acting Solicitor General to opine on whether ERISA permits a cause of action for indemnity or contribution by an individual found liable for breach of fiduciary duty in light of the existing circuit split on the issue.

While the facts of Fenkell are largely irrelevant for this discussion, the important takeaway is that an ERISA employee stock ownership plan fiduciary led the effort to offload an unprofitable company onto its employees in a complicated leveraged buyout. The involved and resulting breach of ERISA fiduciary duties is not contested. Rather, the ringleader, Fenkell, challenged (and continues to challenge) the judge’s order requiring him to indemnify his co-fiduciaries. Simply put, the indemnification order seemed appropriate to the court given the control that Fenkell exerted over the other fiduciaries—the court noted the other fiduciaries’ “inexperience” as fiduciaries and their deference to Fenkell as the controlling owner, sole director, president, and CEO of Alliance. Stated another way, Fenkell was the “conductor,” and the other fiduciaries involved were the “mere musicians.”

In an earlier review, the Seventh Circuit rejected each of Fenkell’s arguments and followed its 30-year-old precedent which allows for indemnification and contribution among co-fiduciaries. In support of its decision to uphold its prior interpretation, the Seventh Circuit reiterated that “[i]f we are to interpret ERISA according to the background principles of trust law—as the Supreme Court has repeatedly instructed us to do—then indemnification and contribution are available equitable remedies under the statute.” Accordingly, the Seventh Circuit found ERISA’s equitable remedial power, as well as its foundation in principles of trust law, supportive of an order for contribution or indemnification among co-fiduciaries based on degrees of culpability.

While this case has not yet been taken up, argued in front of, or decided by the Supreme Court, the Acting Solicitor General’s brief may shed new light on the direction the Supreme Court may take to settle the circuit split. In the meantime and at a minimum, this case and the Supreme Court’s request for the U.S.’s view should remind us that:

  • Under ERISA, if defendants are found to be liable for breaches by co-fiduciaries, then co-fiduciary liability is joint and several.
  • Inexperience—and even fear of retribution from management (e.g., your boss)—will not excuse a failure to discharge fiduciary duties under ERISA.
  • Whether “mere musicians” will ultimately be able to seek protection (in terms of indemnification and/or contribution) from their “conductor” will, under current law, involve lengthy litigation and depend on the reviewing court.

Because fiduciary (and co-fiduciary) duties and conduct will most certainly continue to be closely scrutinized, best practice requires steadfast resolve to work hard as fiduciaries, acting solely in the interest of the participants and beneficiaries in order to discharge their duties of loyalty and prudence. To help ensure this compliance, it is good practice to undergo periodic fiduciary training.

ARTICLE BY Carrie E. Byrnes & Jorge M. Leon of Michael Best & Friedrich LLP

© MICHAEL BEST & FRIEDRICH LLP

US Supreme Court Denies Certiorari in Direct Marketing Association v. Brohl

Supreme Court Direct Marketing AssociationThis morning, the US Supreme Court announced that it denied certiorari in Direct Marketing Association v. Brohl, which was on appeal from the US Court of Appeals for the Tenth Circuit. The denied petitions were filed this fall by both the Direct Marketing Association (DMA) and Colorado, with the Colorado cross-petition explicitly asking the Court to broadly reconsider Quill. In light of this, many viewed this case a potential vehicle to judicially overturn the Quill physical presence standard.

Practice Note: Going forward, the Tenth Circuit decision upholding the constitutionality of Colorado’s notice and reporting law stands, and is binding in the Tenth Circuit (which includes Wyoming, Utah, New Mexico, Kansas and Oklahoma as well). While this development puts an end to this particular kill-Quill movement, there are a number of other challenges in the pipeline that continue to move forward.

In particular, the Ohio Supreme Court recently decided that the Ohio Commercial Activity Tax, a gross-receipts tax, is not subject to the Quill physical presence standard. A cert petition is expected in this case, and could provide another opportunity for the US Supreme Court to speak on the remote sales tax issue. In addition, litigation is pending in South Dakota and Alabama over economic nexus laws implemented earlier this year. A motion hearing took place before the US District Court for the District of South Dakota last week on whether the Wayfair case should be remanded back to state court. If so, the litigation would be subject to the expedited appeal procedures implemented by SB 106 (2016), and would be fast tracked for US Supreme Court review. Tennessee also recently adopted a regulation implementing an economic nexus standard for sales and use tax purposes that directly conflicts with Quill that is expected to be implemented (and challenged) in 2017. While Governor Bill Haslam has praised the effort, state legislators have been outspoken against the attempt to circumvent the legislature and impose a new tax. Notably, the Joint Committee on Government Operations still needs to approve the regulation for it to take effect, with the economic nexus regulation included in the rule packet scheduled for review by the committee this Thursday, December 15, 2016.

All this action comes at a time when states are gearing up to begin their 2017 legislative sessions, with many rumored to be preparing South Dakota-style economic nexus legislation for introduction. While DMA is dead as an option, the movement to overturn Quill continues and the next few months are expected to be extremely active in this area.

ARTICLE BY Stephen P. Kranz, Mark Yopp & Eric Carstens of McDermott Will & Emery

© 2016 McDermott Will & Emery

Jevic Holding Corp.: Is The Supreme Court Now Ready To Strike Down Structured Dismissals?

Supreme Court Bankruptcy Structured DismissalsIn a prior post, we discussed the Third Circuit Court of Appeals’ decision in Jevic Holding Corp., where the court upheld the use of so-called “structured dismissals” in bankruptcy cases, and the Supreme Court’s grant of certiorari. On December 7th, the Supreme Court heard oral argument in Jevic.  The Court’s ultimate ruling will likely have a significant impact upon bankruptcy practice.

Under the Jevic structured dismissal, unsecured creditors received a distribution from a settlement reached between the official committee of unsecured creditors and secured lenders.  Wage priority claimants received nothing from the settlement, notwithstanding their senior position under the Bankruptcy Code.  The bankruptcy court approved the structured dismissal, and by extension the distribution provided for in the settlement, and the district court affirmed on appeal.  The Third Circuit also upheld the structured dismissal, holding that the bankruptcy court has discretion to approve structured dismissals except if there is a showing “that the structured dismissal has been contrived to evade the procedural protections and safeguards of the plan confirmation or conversion process.”

Jevic put front and center two competing concerns in bankruptcy.  On its face, the Jevic structured dismissal appears to conflict with the priority rules set forth in section 507 of the Bankruptcy Code, since junior creditors were paid while certain senior creditors were not.  However, the structured dismissal approved in Jevic also arguably maximized creditor recoveries, albeit in a way that skipped over certain senior creditors. The estate was administratively insolvent and without the structured dismissal, the case would have been converted to Chapter 7 and distributions would have been significantly reduced.

The questions posed yesterday to counsel for Petitioners and counsel for Respondents, as well as to government counsel as amicus curiae, were wide-ranging and pointed.  Justice Breyer questioned the statutory basis for the structured dismissal, noting that while no Code provision forbid it, no specific Code provision permitted it either.  Justice Kennedy looked for guidance on the “for cause” standard under section 349(b), which permits bankruptcy courts to modify the effect of dismissal orders.  Justice Sotomayor expressed concern that there was collusion in Jevic among senior and junior creditors to the detriment of other creditors.  Several Justices expressed concern with Respondents’ position that section 363(b) afforded sufficient discretion to the bankruptcy court to approve a distribution that was at odds with the Code’s priority scheme.  According to Respondents, Jevic presented the extraordinary circumstances required by section 363(b) to deviate from the absolute priority rule since no plan was possible and conversion to Chapter 7 would lead to little, if any, distribution.  Justice Sotomayor questioned Respondents’ position that Jevic was a rare case, and Justice Kennedy took a similar position, noting that it is not rare for there to be no prospect of a confirmable plan, a fact cited by Respondents in support of the Jevic structured dismissal.

Predicting the outcome of cases simply from oral argument is imperfect and notoriously dangerous.  Nonetheless, some commentators have opined that a sufficient number of Justices appear to be sufficiently concerned with the Jevic structured dismissal that the Third Circuit’s opinion is in peril.  If the Court reverses the Third Circuit, the question becomes how sweeping the Court’s opinion will be.

A reversal may well imperil so-called “gift plans”, where a secured creditor makes a payment to junior creditor (the “gift”) in order to obtain support for plan confirmation.  The gift allows the junior creditor to obtain a recovery at odds with the Bankruptcy Code’s priority scheme.  If the Court holds that the priority scheme governs all estate distributions, depending upon the scope of the Supreme Court’s opinion, gift plans may not be permitted.

In addition, if the Court rules that the section 507 priority scheme applies to the entirety of a bankruptcy case, such a holding would conceivably threaten the viability of orders that even Petitioners concede are customary in commercial reorganizations, such as wage payment orders and critical vendor orders.  Those represent instances where estate property is distributed in violation of the Code’s priority scheme, but in reliance on the so-called “Doctrine of Necessity,” where payments serve the overall goal of maximizing the debtor’s going concern value to create the possibility of greater distribution to creditors than does liquidation.

In fact, the Court seemed to struggle with how far its ruling should go, asking the parties what was the scope of the holding they wanted the Court to enter.  Counsel for Petitioners was careful to limit the scope of the holding so as to carve out common Chapter 11 practices, such as wage payment and critical vendor orders.  This was in contrast to counsel for the government who said that it was the government’s view that pre-plan distributions in Chapter 11 that violate the priority scheme “are not permissible under any circumstances unless there is consent of the impaired priority claimholder.”  Depending upon the scope of the Court’s opinion, regular and customary Chapter 11 practices, such as critical vendor motions and pre-petition wage motions, may no longer be permitted.

ARTICLE BY Mark A. Salzberg of Squire Patton Boggs (US) LLP

© Copyright 2016 Squire Patton Boggs (US) LLP

Supreme Court Determines that Seal Violation Does Not Mandate Dismissal

Supreme Court qui tam seal violationOn December 6, 2016, the Supreme Court of the United States decided State Farm Fire and Casualty Co. v. United States ex rel. Cori Rigsby and Kerri Rigsby. At issue was whether a qui tam relator’s violation of the seal requirement, 31 U.S.C. § 3730(b)(2), requires a court to dismiss the suit. In a unanimous decision, the Court concluded that violation of the seal does not mandate dismissal, affirming a lower court decision to deny the defendant’s motion to dismiss.

Section 3730(b)(2) requires qui tam complaints to be filed under seal for at least 60 days and provides that they shall not be served on the defendants until the court so orders. The purpose of the seal is to give the government time to investigate. In practice, the government often seeks numerous extensions while it investigates the conduct alleged in the relator’s complaint.

Justice Kennedy, writing for the Court, reasoned that the text of the False Claims Act (FCA) makes no mention of a remedy as harsh as dismissal. The Court also noted that the FCA was intended to protect the government’s interests, whereas mandatory dismissal would run contrary to those interests, as it would put an end to potentially meritorious qui tam suits. Although the Court made no definitive ruling as to what sanction would have been appropriate, it did note that dismissal “remains a possible form of relief,” while “[r]emedial tools like monetary penalties or attorney discipline remain available to punish and deter seal violations even when dismissal is not appropriate.”

We previously wrote about this matter, here.

ARTICLE BY Evan Panich of McDermott Will & Emery

© 2016 McDermott Will & Emery