Most of the commentary on the Supreme Court’s June 9 decision in CTS Corp. v. Waldburger has focused on the holding that CERCLA does not preempt state statutes of repose which, after a set number of years, extinguish environmental and toxic tort claims—even if the plaintiff-friendly state statute of limitations that § 9658 of CERCLA mandates has not run its course. No doubt the Court’s ruling is important to us civil litigation defense counsel.  I submitted an amicus brief on behalf of DRI—The Voice of the Defense Bar advocating the conclusion that the Court reached and the fundamental, textually based analytical approach that the Court took.

But Waldburger also includes an interesting side show, one that is fascinating to those of us who have been tracking the Court’s federal preemption jurisprudence during the past three decades. Justice Kennedy’s majority opinion starts off on the right track.  It focuses on the text and structure of § 9658, which functions as an express preemption provision by interjecting into state statutes of limitations an ultra-liberal “federally required commencement date” that does not begin until a tort plaintiff discovers both injury or environmental harm and its alleged cause.  The opinion analyzes the plain language of § 9658, which explicitly refers to state statutes of limitations and nowhere mentions state statutes of repose. Not surprisingly, the opinion reaches the conclusion that § 9658 applies only to statutes of limitations and not to statutes of repose. In so doing, the opinion explicitly rejects the Fourth Circuit’s attempt to read statutes of repose into § 9658 merely because CERCLA is a remedial statute. The Court explained such a liberal interpretation cannot “substitute for a conclusion that is grounded in the statute’s text and structure.” Slip op. at 10.   

Unfortunately, Justice Kennedy’s opinion does not stop there.  It includes a Part II-D, in which Justices Sotomayor and Kagan joined, but Justices Scalia, Thomas, and Alito and the Chief Justice did not. (Justices Ginsburg and Breyer dissented from the Court’s decision.) Part II-D gratuitously invokes the controversial and often disputed “presumption against preemption” of the States’ police powers.  Then, as a corollary to that so-called presumption, Part II-D cites two earlier Supreme Court preemption decisions which stated that “when the text of a pre-emption clause is susceptible to more than one plausible reading, courts ordinarily ‘accept the reading that disfavors pre-emption.’”  Id. at 17.  Yet, the Court did not find that § 9658 is susceptible to more than one interpretation.  Indeed, Part II-D states that the plaintiffs had not shown “with clarity” that Congress intended §  9658 to apply to statutes of repose, in which case—as I argued in DRI’s amicus brief—applicable statutes of repose would “cease to serve any real function.”  Ibid.

Justice Scalia, joined by the Chief Justice and Justices Thomas and Alito, filed a separate, one-paragraph concurring opinion that joined in all but Part II-D.  In his separate opinion, Justice Scalia insisted, as he has since Cipollone v Liggett Group, Inc., 504 U.S. 505 (1992), that the interpretation of express preemption provisions should be governed by “ordinary principles of statutory construction.”  In other words, he rejects the “notion . . . that express pre-emption provisions must be construed narrowly,” rather according to the “ordinary meaning” of the language that they employ. See Cipollone, 505 U.S. at 548 (Scalia, J., concurring in judgment in part and dissenting in part).  

This division within the Court about presumptions and special rules of construction that should or should not apply to interpretation of “express pre-emption provisions” may persist for years to come. But at least in Waldburger, the debate was academic.  

There is one aspect of Waldburger and other Supreme Court preemption cases, however, over which there can be no real debate: Only members of the Court and their law clerks have continued the inexplicable tradition of hyphenating the term “pre-emption” rather than spelling it like the rest of us.  Just another baffling aspect of the Court’s preemption decisions . . . .  

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The United States Supreme Court today issued its opinion in American Express Co., v. Italian Colors Restaurant, 570 U.S. ___, No. 12-133 (June 20, 2013), a case addressing class action waivers in arbitration agreements.  DRI submitted an amicus curiae brief in support of the granting of American Express’s petition for certiorari.  The important question presented in AMEX was whether courts could invoke “federal substantive law of arbitrability” to invalidate arbitration agreements that do not permit class arbitration of federal-law claims.  Writing for a 5 – 3 majority, Justice Scalia held that the Federal Arbitration Act does not permit courts to invalidate a contractual waiver of class arbitration even if the plaintiff’s cost of individually arbitrating a federal statutory claim exceeded the potential recovery.  This latest decision marks the fifth foray the Court has taken just this term into the important area of class and collective actions and will be the topic of one of the presentations at DRI’s Class Actions Seminar on July 25 and 26 at the historic Willard Intercontinental Hotel in Washington, D.C.

Notwithstanding the existence of arbitration clauses in their contracts with AMEX, various merchants filed suit seeking damages under federal anti-trust law.  In response to a motion to dismiss the lawsuit and to compel arbitration, the plaintiffs submitted an expert affidavit asserting that the costs of proving claims on an individualized basis ranged from several hundred thousand dollars to more than $1,000,000 while the maximum recovery for an individual plaintiff was less than $40,000.  The district court nonetheless granted the motion to compel arbitration and dismissed AMEX.  The court of appeals reversed, holding that the prohibitive cost of pursuing individual claims precluded enforcement of an arbitration provision that also included a class action waiver.  The Supreme Court originally granted certiorari, vacated the appellate court’s decision, and remanded for further proceedings in light of Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662 (2010), which had held that a party cannot be compelled to submit to class arbitration absent an agreement so to do.  The court of appeals again reversed, finding that its prior decision refusing to enforce the arbitration provision did not compel AMEX to engage in class arbitration.  Instead, it remanded with directions for the district court to deny the motion to compel arbitration. The Supreme Court again granted certiorari and reversed.

Restating the familiar principle that arbitration provisions are matters of contract, the majority held that the FAA required courts to compel arbitration of federal statutory claims unless Congress had mandated a different result in the substantive statute.  Concluding no such statutory prohibition against arbitration existed in the federal anti-trust laws, the majority had little trouble concluding that individual arbitration of the anti-trust claims was required.  In response to the argument that the prohibitive cost of enforcing individual claims in arbitration effectively precluded vindication of plaintiffs’ statutory rights, the majority simply stated that while there may be some basis for invalidating clauses which operate to prospectively waive a party’s right to pursue a particular statutory remedy, the fact that “it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.”  Slip Op. at 7 (emphasis in original).  Because the clause at issue did not on its face preclude individual arbitration of a federal statutory claim and because of the practical concern that pre-arbitration collateral litigation as to whether it was in fact economically infeasible to arbitrate individual claims would defeat the goals of the FAA, the majority reversed the court of appeals’ decision directing the district court to deny the motion to compel arbitration.

Michael Kellogg of Washington, D.C. argued the case for AMEX and he is among four advocates involved in this term’s class action decisions who are featured speakers for the 2013 DRI Class Actions program.  The others include Miguel Estrada, who argued Comcast v. Behrends; Noah Levine, the principal brief writer in Amgen Inc. v. Connecticut Retirement Plans and Trust Funds; and Ted Boutrous, who argued The Standard Fire and Insurance Company v. Knowles.  In addition, the program will feature five in-house counsel speaking on two panels regarding class actions, as well as other leading class and collective action practitioners.  Information about registering for this timely and important program is here.

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Class Action Deemed to Be Improperly Certified by Lower Courts

CHICAGO – (March 27, 2013) The Supreme Court this morning reversed the judgment of the Third Circuit Court of Appeals in the case of Comcast v. Behrend, an opinion in alignment with the position of DRI – Voice of the Defense Bar in its amicus brief filed in August of last year. The majority held that the class action in Comcast v. Behrend was improperly certified under Rule 23(b)(3). 

In this case, subscribers sued Comcast Corp. and various Comcast subsidiaries, alleging that Comcast monopolized Philadelphia’s cable market and excluded competition in violation of federal antitrust laws. To constitute a class, plaintiffs proffered an expert damages model that purported to prove each class member’s damages by evidence common to all. Comcast responded that the plaintiffs’ model was incapable of calculating damages for the class because it was based on several erroneous assumptions about the asserted claims, and indeed that common proof of damages is impossible given significant differences among the class members. The district court nonetheless certified the class.

Comcast sought review in the Third Circuit Court of Appeals, which affirmed the certification order after expressly declining to consider Comcast’s contentions. While the Third Circuit acknowledged that, “[t]o satisfy . . . the predominance requirement, Plaintiffs must establish that the alleged damages are capable of measurement on a class-wide basis using common proof,” it nonetheless insisted that “[w]e have not reached the stage of determining on the merits whether the methodology [offered by Plaintiffs] is a just and reasonable inference or speculative.” The court concluded that Comcast’s “attacks on the merits of the methodology” have “no place in the class certification inquiry.” 

In his dissent, Judge Jordan stated in part, “not only have Plaintiffs failed to show that damages can be proven using evidence common to the class, they have failed to show . . . that damages can be proven using any evidence whatsoever—common or otherwise.” 

The Supreme Court held that the Third Circuit erred in refusing to decide whether the plaintiff class’s proposed damages model could show damages on a class-wide basis. Under proper standards, the model was inadequate and the class should not have been certified. The vote was 5–4 with Justices Breyer, Ginsburg, Sotomayor and Kagan dissenting.

Citing the Federal Judicial Center’s Reference Manual on Scientific Evidence, the majority held that “’The first step in a damages study is the translation of the legal theory of the harmful event into an analysis of the economic impact of that event.’ The District Court and the Court of Appeals ignored that first step entirely.”

The Third Circuit’s approach to class certification would have allowed plaintiffs to obtain certification without showing a reasonable likelihood that they will be able to prove their class-wide claims (predominately) by common evidence. This would have significantly lowered class plaintiffs’ burden under Rule 23 and resulted in the certification of many more non-meritorious class actions.
Brief author Jonathan F. Cohn of Sidley Austin LLP, Washington DC, is available for interview or for expert comment through DRI’s Communications Office.
For the full text of the brief, click here.

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SCOTUS Update - Hadden v. United States

Posted on September 25, 2012 02:05 by Robert H. Wright

The Supreme Court of the United States is meeting today to decide which cert. petitions will be granted for the new term, which formally begins next Monday.  One of the petitions distributed for review at the conference will be that from Hadden v. United States, in which DRI – The Voice of the Defense Bar filed an amicus curiae brief in support of cert.  The issue in the case is whether, under the Medicare Secondary Payer Act, the government is entitled to full reimbursement of its Medicare payments when a beneficiary compromises a tort claim and recovers a reduced amount for medical expenses, or whether the government (like its beneficiary) is entitled to only a proportionate recovery from the settlement.  The petition is listed on the (a blog devoted to coverage of the Supreme Court) as one of the “Petitions to Watch” at this conference.  Today, at about 9:30 a.m. eastern, the court is expected to release its list of the petitions granted in today’s conference.

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The Supreme Court heard oral argument on two consolidated cases, Florence v. The Board of Chosen Freeholders of the County of Burlington.  Two well-known and experienced members of the United States Supreme Court appellate bar, Thomas C. Goldstein and Carter Phillips, squared off as the Court considered whether the Fourth Amendment permits a jail to conduct a suspicion-less search whenever an individual is arrested, including for minor offenses.  DRI, which has an active committee for lawyers engaged in representing local governments, filed an amicus brief in support of the county jails.  Written by Mary Massaron Ross, the brief focused on the difficult problems of administration that would arise with a “reasonable suspicion” rule as urged by the class action plaintiffs and reminded the Court of past precedent adopting a bright line rule for Fourth Amendment searches in some categories of cases.  DRI argued that a bright line rule was necessary to give guidance to jailers, to facilitate their efforts to ensure that contraband is not introduced into jail, to help with prison security by identifying those with gang tattoos, and to ensure that lice and other health issues are identified and addressed. 

From the inception of Mr. Goldstein’s argument for the plaintiffs, he faced difficult questions from members of the Court seeking a clear rule for when a search would be constitutional.  Justice Ginsburg asked the first question, wanting to know whether Mr. Goldstein’s reasonable suspicion rule would apply to all arrestees or whether he proposed a distinction between felons and serious offenders.  Mr. Goldstein responded that his rule would apply to everyone but then backed away somewhat when he faced additional questions, noting that reasonable suspicion would exist categorically for those arrested for more serious offenses.  After a barrage of questions on the scope of his proposed rule and what kinds of offenses it would categorically apply to, Mr. Goldstein attempted to define the constitutional limits of jailers’ conduct by saying that reasonable suspicion would not be required for “anything other than looking at a close inspection of the person at arm’s length.”  He insisted that “just observing in a shower room… does not implicate a reasonable expectation of privacy.”  Mr. Goldstein also faced multiple questions about what would be permitted under his approach, whether constitutionality would depend on whether the search was merely visual, whether showering in the presence of officers would be permitted, whether the distance of the officers made a difference, and whether it mattered where the search took place. 

Justice Kennedy, often the swing vote in close votes on constitutional cases, said, “But it seems to me that you risk compromising your individual dignity if you say we have reasonable suspicion as to you, but not to you…You are just setting the detainees up for a classification that may be questioned at the time, and will be seen as an affront based on the person’s race, based on what he said or she said to the officers coming in.”  Justice Kennedy further observed that the reasonable suspicion rule “imperils individual dignity in a way that the blanket rule does not.”  Mr. Goldstein told Justice Kennedy that the county defendants did not have a blanket rule either because they only do a visual search unless they have reasonable suspicion.

Other justices had problems with Mr. Goldstein’s effort to draw a line between permissible and impermissible conduct based on the distance of the officers, including Justice Sotomayor.  She said at one point, “That is a line that doesn’t make sense to me.”  She also questioned him about his effort to differentiate between visual searches from several feet away and visual searches involving a requirement that the individual open or expose private parts of the body.  Justice Sotomayor also questioned Mr. Goldstein about whether corrections officials could be expected to investigate the nature of the offense on intake.  Justice Kennedy likewise had questions about whether rap sheets were immediately available at the time of intake.  And Justice Roberts followed up to ask whether there was anything in the record to “show how much additional time it would require to look at each one, to look at their record, to determine which category they should fall into to strip search or not, as opposed to having a blanket rule.”  Justice Scalia suggested an originalist view, noting that “at the time the Fourth Amendment was adopted, this --- this was standard practice, to strip search persons who were admitted to prisons.”

Carter Phillips began his argument by noting that the scope of the claims had been somewhat confused in the record and cautioning the Court regarding analyzing the set of issues involved in the class certification and the second set of issues involved in the plaintiffs’ claims.  He also urged the Court to focus on the policies in effect in 2005, which was the basis on which Mr. Florence was arrested, rather than looking at later-enacted changes to the policies.  Mr. Phillips urged the Court to adopt a blanket rule permitting even a more intrusive body cavity search without reasonable suspicion.  He noted that the detainees were being introduced into the general jail population in both counties, thus he did not have to defend a rule pertaining to those arrested and held in separate holding areas. 

Justice Breyer and Justice Alito both questioned whether this type of search could be performed on any individual including those arrested on minor offenses.  Justice Breyer pointed to the ABA’s position, which was that reasonable suspicion would be required for detainees arrested for minor offenses, not including drugs or violence.  Mr. Phillips responded by pointing to expert testimony showing that a greater presence of contraband is found among individuals with minor offenses.  Justice Breyer and Justice Sotomayor both pressed Mr. Phillips for empirical evidence that contraband would be a problem if a reasonable suspicion rule were to be adopted.  Justice Ginsburg asked Mr. Phillips if there were any constitutional limits to the type of body cavity search in his view.  And he responded no – that the “balance would tip in favor of the… institution under those circumstances.”  Mr. Phillips urged the Court to write an opinion “that recognizes that deference to the prison and to their judgment s what’s appropriate under these circumstances, and that extends all the way to the Bell v. Wolfish line.”  Justice Kennedy suggested during the argument that those arrested on minor offenses and put into the general jail population might “well prefer an institution where everyone has been searched before he or she is put into the population….” 

After Mr. Phillips spoke, Nicole A. Saharsky, on behalf of the United States, argued in support of the counties’ position.  She emphasized that detainees might well hide a gun or contraband on their person at the time of an arrest, or might obtain such items during the time between the arrest and reaching the county jail.  She told the Court that the United States position is to support a policy to “inspect everyone who would be put in the general jail population.”  

On rebuttal, Mr. Goldstein focused on the empirical evidence, which he contended supported the conclusion that a reasonable suspicion standard did not result in security problems in jails or prisons. 

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On October 11, 2011 the Supreme Court heard argument in CompuCredit Corp. v. Greenwood, No. 10-948, confronting the intricacies of application of pre-dispute arbitration agreements, supported by strong federal policy favoring arbitration, and federal statutes containing non-waiver of “rights” provisions in the consumer arena.  Specifically, the Question Presented was:

Whether claims arising under the Credit Repair Organizations Act, 15 U.S.C. § 1679 et seq. (“CROA”), are subject to arbitration pursuant to a valid arbitration agreement.

The Court’s recent cases applying the Federal Arbitration Act, 9 U.S.C. § 2 (“FAA”) represent an unbroken string of enforcement of arbitration agreements in a variety of contexts.  None of the federal statutes previously considered were specific enough to overcome presumptive arbitrability under the FAA.

The CompuCredit Case and the CROA
Respondents, who acquired credit cards through CompuCredit, successfully persuaded the District Court and the Ninth Circuit Court of Appeals that the CROA provides consumers with a non-waivable right to litigate their disputes in court.  Greenwood v. CompuCredit Corp., 617 F. Supp.2d 980, 988 (N.D. Cal. 2009)(denying motion to compel arbitration despite strong federal policy favoring arbitration)  aff’d 615 F.3d 1204, 1205 (9th Cir. 2010).  The Ninth Circuit’s holding created a conflict with the Third and Eleventh Circuits, both favoring compulsory arbitration of CROA claims.    

CompuCredit marketed a sub-prime credit card to consumers with impaired credit, advertising that the card could improve a consumer’s credit rating, although the credit limit on the cards typically was a mere $300.  However, the issuing bank would charge fees totaling $180 against the $300 credit limit.  The pre-approved acceptance certificate enclosed “terms of the offer” and a “summary of credit terms” with a pre-dispute arbitration provision.  CompuCredit principally relied on the argument that the  CROA nowhere mandates judicial resolution of any “rights” or “causes of action” asserted by consumers.  A “right to sue” does not mean a “right to sue in court”.  CompuCredit’s position was supported by amicus briefs by DRI and the Consumer Data Industry Association.  

Respondents filed a class action alleging violations of substantive provisions of the CROA for deceitful marketing. In 1996, Congress enacted the CROA to ensure sufficient disclosures to permit consumers to make informed decisions when dealing with credit repair companies and prohibit predatory practices.  Respondents alleged that CompuCredit omitted the necessary disclosures altogether or failed to present them with the required detail.  Respondents relied on a reading of  the obligation of credit firms to disclose consumers’ “right to sue” and a cross reference to a separate section providing that “[a]ny waiver by any consumer of any protection ***or any right” is void.  15 U.S.C. § 1679f(a).    They also argued, in reliance on language in AT&T Mobility v. Concepcion, 563 U.S. ___ (2011), that class arbitration is inadequate to protect consumers’ interests.  Respondents, also, were supported by amicus briefs, including one by the AARP and the NSCLC. 

Issues for the Supreme Court
Broadly considered, the decision may resolve whether consumer contracts’ pre-dispute arbitration agreements are enforceable and afford sufficient protections for consumers outside of court processes, whether in class actions or not.  More narrowly considered, the result may be limited solely to the specific “right to sue” language of the CROA.  Alternatively, the decision may have limited life if the Consumer Financial Protection Bureau, authorized by §1028 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, exercises its authority to abolish pre-dispute arbitration agreements in consumer contracts.  Ironically, however, Congress’ provision of the specific authority to do so demonstrates Congress can plainly state its’ intent to bar arbitration and cuts against Respondents’ “plain language” arguments in CompuCredit.

Clues from Oral Argument?
If one hoped for a partisan duel between liberal and conservative Justices, the oral argument will be a disappointment.  While Justices Sotomayor, Kagan, and Ginsburg at times seemed very concerned with how the ordinary person would construe the phrase “right to sue”, the significance of the disclosure requirement in the CROA, and the one-sided nature of non-bargained for consumer contracts, their questions disclosed concerns with Respondents’ position as well in light of the court’s precedent and the necessity to distinguish post dispute arbitration agreements and pre-dispute arbitration waivers.   Chief Justice Roberts remarked that the term “lawsuit” does not typically refer to arbitration.  Justice Kennedy queried whether the act of requesting the waiver caused a breach of the CROA.  Presumably, this would fit an argument to construe the statute to avoid absurd results. Yet, the argument covered a litany of other federal statutes containing non-waiver provisions that courts frequently refer to arbitration, including antitrust, RICO, ADEA, and Truth in Lending Act claims.  None of them use the same language as the CROA.  Justice Scalia took interest in the argument that the “right to sue” language was not included in the substantive, versus procedural, rights in the CROA.    

Likely Outcome
CompuCredit will resolve the circuit conflict and will continue the trend of enforcement of arbitration provisions by the Supreme Court.  The interesting point will be to see how broadly or narrowly the Court will address the issues, which will turn on how a divided Court will align on the majority analysis used to address the case.  A future update will follow when the decision is entered.      

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Today, DRI filed an amicus curiae brief in the United States Supreme Court in CompuCredit Corporation and Synovus Bank v. Wanda Greenwood et al. (No. 10-948).   In this case the Court will consider whether claims arising under the Credit Repair Organization Act (CROA), 15 U.S.C. § 1679 et seq., are subject to arbitration under valid arbitration agreements.

In Greenwood v. CompuCredit, 615 F.3d 1203 (9th Cir. 2010), the Ninth Circuit ruled that claims brought under CROA are not subject to arbitration, despite the parties' prior agreement to settle all disagreements by that method. The Third and Eleventh Circuits, however, have notably ruled that CROA claims are subject to arbitration. 

DRI's brief points out that the Court has consistently honored the strong federal policy favoring arbitration, recognizing again and again that a claim is arbitrable unless Congress says otherwise.  It argues that both the outcome of this case below and the Ninth Circuit's approach to the issue of arbitrability of statutory claims are in conflict with the Court's precedent, as well as with Congress's endorsement of arbitration.  For these reasons, DRI's brief urges the Court to reverse the decision below, preserving the settled expectations of countless parties to arbitration agreements. 

DRI's brief was authored by Linda T. Coberly of Winston & Strawn in Chicago. DRI will report on the Court's decision immediately upon its release.

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