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July 6, 2020 |
Supreme Court Upholds TCPA’s Robocall Ban, But Strikes Government-Debt Exception As Unconstitutional Under First Amendment

Click for PDF Decided July 6, 2020 Barr v. American Association of Political Consultants, Inc., No. 19-631

Today, the Supreme Court held 6-3 that the federal-debt-collection exception to the TCPA’s robocall ban violates the First Amendment, but also held 7-2 that the proper remedy is to sever the exception—leaving in place the entirety of the TCPA’s 1991 ban on robocalls. 

Background: The Telephone Consumer Protection Act of 1991 (TCPA) generally prohibits robocalls to cell phones and home phones. In 2015, Congress amended the Act to exempt robocalls to cell phones for collecting debts owed to or guaranteed by the federal government—including student-loan and mortgage debts—from the TCPA’s general prohibition.

Plaintiffs—a group of political and nonprofit organizations seeking to make robocalls—sued the U.S. Attorney General arguing that the 2015 government-debt exception violates the First Amendment by unconstitutionally favoring debt-collection speech over political and other speech. As relief, the plaintiffs sought to invalidate the TCPA’s entire robocall ban for cell phones, rather than only the 2015 government-debt exception. Plaintiffs’ theory was that the exception undermines the credibility of the purported privacy interest supporting the entire robocall ban.

The district court held that the 2015 government-debt exception was a content-based speech regulation, but that it survived strict scrutiny given the government’s compelling interest in collecting debt. The Fourth Circuit reversed, holding that the government-debt exception failed strict scrutiny. Applying traditional severability principles, the Fourth Circuit then concluded that the government-debt exception should be severed from the statute, leaving the TCPA’s robocall ban in effect.

Issue: 1. Whether the government-debt exception from the TCPA’s robocall ban for cell phones violates the First Amendment.

2. If so, whether the TCPA’s entire robocall ban is unconstitutional.

Court's Holding: 1. The government-debt exception is a content-based speech restriction that impermissibly favors debt-collection speech over political and other speech in violation of the First Amendment.

2. The TCPA’s robocall ban stands because the government-debt exception is severable from the remainder of the statute.

“Congress has impermissibly favored debt-collection speech over political and other speech . . . As a result, plaintiffs still may not make political robocalls to cell phones, but their speech is now treated equally with debt-collection speech.

Justice Kavanaugh, writing for a plurality of the Court

What It Means:
  • The TCPA’s robocall ban remains in effect as it existed before 2015, prohibiting virtually all automated voice calls and text messages to cell phones. Six Justices (writing a total of three opinions) agreed that the 2015 government-debt exception was content based and that the government, in attempting to defend the content-based speech restriction, failed to sufficiently justify treating government-debt-collection speech differently from other important categories of robocall speech, such as political speech and issue advocacy.
  • Seven Justices agreed that the 2015 government-debt exception could be severed from the remainder of the statute to preserve the underlying 1991 robocall restriction.  Not only has the Communications Act (of which the TCPA is part) had an express severability clause since 1934, the Court explained, but also, even without the severability clause, the presumption of severability would still apply—and the remainder of the restriction is capable of functioning independently without the narrow government-debt exception.
  • As in Seila Law LLC v. Consumer Financial Protection Bureau (No. 19-7), Justices Gorsuch and Thomas dissented from the Court’s severability holding.  Justice Gorsuch wrote, “[s]evering and voiding the government-debt exception does nothing to address the injury” of barring plaintiffs from engaging in political speech robocalls.  Slip. op. 6 (Gorsuch, J., concurring in the judgment in part and dissenting in part).  Justice Gorsuch and Justice Thomas argued that the Court should reconsider its severability doctrine.

The Court's opinion is available here.

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July 1, 2020 |
California Supreme Court Answers Critical Questions on Jurisdictional Scope of Certain Labor Laws and Minimum Wage Compliance for Employers Utilizing Non-Hourly Wage Units

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On June 29, 2020, in response to a request from the Ninth Circuit, the California Supreme Court provided guidance on pressing questions of California employment law in Oman v. Delta Airlines, Inc., No. S248726, ___Cal.5th___ (Oman). The Court issued a unanimous opinion on (1) the scope and applicability of California Labor Code Sections 204 and 226, which respectively govern the timing of wage payments and the content of wage statements, and (2) compliance with state minimum wage laws for employers who pay their employees on a non-hourly basis. The Court held that Labor Code Sections 204 and 226 apply to employees only if California is the principal place of their work, meaning the employee either works primarily in this state during the pay period, or does not work primarily in any state but has his or her base of operations in California. (Id. at [pp. 10, 13].) The Court then held that although employers who pay on a non-hourly basis may “average” wages across the unit of payment to determine minimum wage compliance, they may not engage in “wage borrowing,” meaning, “borrowing compensation contractually owed for one set of hours or tasks to rectify compensation below the minimum wage for a second set of hours or tasks.” (Id. at [p. 19].) The decision provides both local and multi-state employers with long-awaited guidance on two important issues of California wage-and-hour law.

A. Flight Attendants Sue Airlines Claiming That Their Wage Statements and the Timing of Their Wage Payments Violated California Law and That They Were Not Paid Minimum Wage for All Hours Worked

Plaintiffs Dev Anand Oman, Todd Eichmann, Michael Lehr, and Albert Flores are current or former flight attendants for Delta Airlines, Inc (“Delta”). In 2015, they filed a putative class action in federal court alleging that Delta violated several California labor laws. Plaintiffs alleged that Delta failed to pay its flight attendants in accordance with the state’s minimum wage laws, provide comprehensive wage statements required under California Labor Code Section 226, and timely pay wages within the semimonthly schedule provided in Labor Code Section 204. The district court ultimately granted summary judgment to Delta on all issues. First, the district court concluded that Delta’s compensation plan—which involved a complex, multi-factor formula intended to compensate for a “rotation” of work—did not violate California’s minimum wage laws. It then determined the Labor Code provisions governing pay periods and wage statements did not apply to Plaintiffs because the multi-jurisdictional nature of their work and the short duration of their time in California were insufficient to warrant application of California law.

Plaintiffs appealed the decisions to the Ninth Circuit. Before deciding the appeal, the Ninth Circuit certified the following three questions of California state law to the California Supreme Court (id. at [p. 4]):

(1) Do sections 204 and 226 apply to wage payments and wage statements provided by an out-of-state employer to an employee who, in the relevant pay period, works in California only episodically and for less than a day at a time?

(2) Does California minimum wage law apply to all work performed in California for an out-of-state employer by an employee who works in California only episodically and for less than a day at a time?

(3) Does the Armenta/Gonzalez bar on averaging wages apply to a pay formula that generally awards credit for all hours on duty, but which, in certain situations resulting in higher pay, does not award credit for all hours on duty?

The California Supreme Court accepted the request, continuing its recent pattern of accepting certified-question appeals from the Ninth Circuit, particularly on labor and employment issues. Oman was decided alongside two companion cases, Ward v. United Airlines, Inc., and Vidrio v. United Airlines, Inc., No. S248702, ___ Cal.5th ___ (together, Ward), which similarly concerned the applicability of state labor laws to flight attendants primarily based outside the state’s territorial jurisdiction.

B. The Court’s Opinion in Oman Offers Clarity on the Geographical Scope of Certain California Labor Laws and Compliance with State Minimum Wage Requirements

Justice Kruger authored the opinion of the Court, in which Chief Justice Cantil-Sakauye and Justices Chin, Corrigan, Liu, Cuéllar, and Groban concurred. The Court addressed the first and third questions certified by the Ninth Circuit, commencing with the question concerning the reach of Labor Code Sections 226 and 204, which respectively address the content of wage statements and the mandatory timing of wage payments. The Court, relying on its decision in the companion Ward case, unanimously held that an employee was not entitled to the protection of either section unless California was the principal place of that employee’s work during the relevant pay period. (Oman, supra,___ Cal.5th ___ at [pp. 10, 13].) The Court clarified that California would be the principal place of an employee’s work if the employee either (1) works primarily in California during the pay period, or (2) does not work primarily in any state but has his or her base of operations in California. The Court reasoned that any other conclusion would lead to impractical and burdensome results for multi-state employers and, importantly, lacked any reasonable policy justification. Because the proposed class of Delta employees included individuals like Plaintiff Dev Oman who neither performed their work predominantly in California nor were based in the state for work purposes, they were not entitled to the protections of Sections 204 and 226. (Id. at [p. 7].) The Court also clarified for the Ninth Circuit that the location or residence of the employer is irrelevant to the analysis of the applicability of Section 226 (and by implication, irrelevant to the applicability of Section 204 as well). (Ibid.)

The remainder of the Court’s opinion addressed the Ninth Circuit’s questions regarding the permissibility of Delta’s compensation scheme in light of California’s minimum wage laws, with the Court ultimately determining that Delta complied with California’s minimum wage requirements. The Court, however, chose not to resolve the Ninth Circuit’s question of whether California minimum wage laws applied under the factual circumstances of the case.[1] (Id. at [pp. 13–14].) Instead, the Court’s analysis centered on the substance of California’s minimum wage laws themselves, specifically the issues involved in determining if a compensation scheme that does not pay employees an hourly wage, but instead pays per task or other “method of compensation,” complies with such laws.

In analyzing that issue, Justice Kruger focused on the nature of the contractual obligation between the employer and employee with respect to pay. (Id. at [pp. 19–20].) Her premise was simple: the employer’s first obligation is to pay all employees at least the hourly minimum wage for those units compensated under the contract, whether those units are day, task, piece, or some other metric. (Id. at [pp. 20–21].) The Court held that determining whether the employer had satisfied its contractual obligation could be done by “translat[ing] the contractual compensation into an hourly rate by averaging pay across those tasks or periods.” (Id. at [p. 21].) For example, an employer that pays in daily units can average pay across all hours worked in a day to determine if the resulting hourly wage meets the minimum required. Delta easily satisfied this obligation; the parties did not contest that Delta’s flight compensation rates, when averaged, far exceeded the minimum wage requirements. (Id. at [pp. 24–25].)

Justice Kruger, however, emphasized that this was not the end of the inquiry. The employer must meet its minimum wage obligations while also paying for each task, day, or other unit at the contractually promised rate. The Court used the seminal case of Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314 (Armenta), to illustrate this concept. (Oman, supra,___ Cal.5th ___ at [pp. 21–22].) In Armenta, the employer agreed to compensate employees for hours engaged in specified “productive tasks” at a rate well above the minimum wage threshold, but did not compensate for work that was not captured by the “productive tasks” category. (Ibid.) The employer there argued that there was no minimum wage violation because the employees’ total wages, when averaged across the total amount of time spent on productive and non-productive tasks, exceeded the minimum wage. (Id. at [pp. 18–19].) The Court of Appeal rejected that argument and held that wages for productive tasks could not be averaged, or “borrowed,” in Justice Kruger’s words, to satisfy the employer’s minimum wage obligations for the non-productive tasks, because to do so would essentially provide the employer a discount on the rate it agreed to pay the employee for contractually-covered work. (Ibid.)

The Court ultimately distinguished Armenta in analyzing Delta’s compensation scheme. Unlike Armenta, Delta’s payment scheme, although based on a complex formula with particular inputs, did not provide specific compensation for any particular hour of work; instead it offered a guaranteed level of compensation for each rotation. (Id. at [p. 28].) Justice Kruger reasoned that there were “no on-duty hours for which Delta contractually guarantees certain pay—but from which compensation must be borrowed to cover other un- or undercompensated on-duty hours,” and as such, “the concerns presented by the compensation scheme in Armenta . . . are absent here.” (Ibid.)

This holding serves as an important clarification for employers: Averaging wages across hours worked is not a per se improper way to determine minimum wage compliance, provided the averaging is done across the contractually agreed-upon unit of payment. What is impermissible is wage borrowing—using wages in excess of the minimum wage for the contracted-for hours to meet minimum wage requirements for other hours worked that are not covered by the contractual arrangement.

C. Justice Liu’s Concurrence Reiterates the Importance of Contractual Interpretation

Justice Liu’s concurring opinion, joined by Justice Cuéllar, addressed only the third question certified by the Ninth Circuit and centered on the first step in the Court’s analysis—identifying the nature of the contractual commitment between the employer and employee. (Oman, supra, ___Cal.5th___[conc. opn. of Liu, J.], at [p. 1].) Justice Liu directed courts to give adequate attention to interpreting the parties’ mutually-understood contractual obligations, as those obligations are key to determining whether wages have been unlawfully borrowed. (Id. at [p. 3].) He further cautioned against allowing employers to circumvent their wage obligations by simply inserting minimum wage floors into their employment contracts. (Ibid.)

D. Implications of the Court’s Decision for Employers

The Court’s decision resolves open questions with respect to the extraterritorial reach of Sections 226 and 204, but does not address those same issues with respect to California’s minimum wage provisions. Still, the Court’s decision does clarify that what was once perceived as an outright prohibition on averaging wages in determining minimum wage compliance is now more precisely understood as a bar on borrowing wages in a manner that contractually undercompensates an employee. Further, the Court’s emphasis on contractual interpretation underscores the importance of clear contractual drafting: going forward, employers with California operations should stay current on court decisions involving the interpretation of the scope of contractual employment terms, including for pay plans with so-called hourly backstops, which have become increasingly common in industries where the dominant unit of pay is something other than hourly pay.

_______________________

   [1]   The Court did not resolve the Ninth Circuit’s certified question concerning the applicability of California’s minimum wage laws to all work performed in California for an out-of-state employer by an employee with limited working hours in California. (Id. at [pp. 13– 14].) The Court determined that the question of applicability was immaterial based on its preliminary determination that, regardless, Delta would have been in compliance with those laws. (Ibid.)


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June 29, 2020 |
Supreme Court Holds That Consumer Financial Protection Bureau’s Structure Is Unconstitutional

Click for PDF Decided June 29, 2020 Seila Law LLC v. Consumer Financial Protection Bureau, No. 19-7

Today, the Supreme Court held 5-4 that the single-Director structure of the Consumer Financial Protection Bureau violates the Constitution’s separation of powers, but ruled 7-2 that the proper remedy is to sever the Director’s statutory for cause removal restriction, thereby making the Director removable by the President at will. 

Background: The Consumer Financial Protection Bureau (“CFPB”) was created as an independent federal agency by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. The CFPB enforces 19 federal consumer-protection statutes and is headed by a single Director who is removable by the President only “for cause,” not “at will” for mere policy disagreements with the President. The CFPB served a civil investigative demand on petitioner, a law firm that provides debt-collection services, and later sought to enforce that demand in federal court. Petitioner argued that the demand was invalid because the CFPB’s structure violated the Constitution’s separation of powers by vesting too much executive power in a single Director who does not answer to the President. The district court and the U.S. Court of Appeals for the Ninth Circuit both rejected the challenge, concluding that the CFPB is constitutionally structured.

Petitioner then sought and obtained Supreme Court review, supported by the United States and the CFPB itself, both of which agreed that the agency’s structure unconstitutionally limited the President’s removal authority. The parties disagreed, however, on whether the proper remedy for the constitutional violation was to sever the Director’s statutory “for cause” removal restriction, thereby making the Director answerable to the President, or instead to invalidate the entire statute creating the CFPB. The Supreme Court appointed amicus curiae counsel to defend the constitutionality of the CFPB’s structure, as the United States declined to do so.

Issue: Whether the CFPB’s structure as a powerful agency headed by a single Director removable by the President only “for cause” violates the Constitution’s separation of powers, and, if so, whether severing the statute’s “for cause” removal restriction to make the Director removable “at will” by the President cures the unconstitutionality.

Court's Holding: The CFPB’s structure as a powerful federal agency headed by a single Director removable by the President only “for cause” violates the Constitution’s separation of powers. The violation is cured by severing the “for cause” removal restriction and making the Director answerable to the President.

“[A]n independent agency led by a single Director . . . lacks a foundation in historical practice and clashes with constitutional structure by concentrating power in a unilateral actor insulated from Presidential control.

Chief Justice Roberts, writing for the Court

Gibson Dunn submitted an amicus brief on behalf of the Center for the Rule of Law in support of petitioner: Seila Law LLC What It Means:
  • The Court’s decision recognizes a significant limitation on Congress’s ability to create so-called “independent” agencies. Agencies that execute federal law and are headed by a single Director, including financial regulators, now cannot be “independent” of the President, but instead must be subject to the President’s constitutional duty to control the federal officers who assist the President in executing federal law. The reasoning of Humphrey’s Executor v. United States, 295 U.S. 602 (1935), which provides the constitutional rationale for “independent” agencies, is limited to “multimember expert agencies that do not wield substantial executive power,” such as the Federal Trade Commission as it existed in 1935.
  • Because the CFPB’s Director is now answerable to the President, the CFPB’s regulatory and enforcement activities now should more closely align with the President’s policy objectives. The Court’s decision gives the President greater power to execute federal consumer-protection law, and makes the President accountable for the CFPB’s performance.
  • The Court’s prospective remedy of severing the statutory provision that limited removal of the CFPB Director “for cause” may mean that the agency can continue to operate without significant disruptions.
  • The Court did not address whether a civil investigative demand issued by a Director unconstitutionally insulated from removal but later purportedly ratified by an Acting Director who was accountable to the President is enforceable. The Court remanded the case for the lower courts to decide the ratification issue in the first instance.
  • Justice Thomas, joined by Justice Gorsuch, concurred in part in the Court’s constitutional holding and dissented in part from the Court’s severability holding. Justice Thomas and Justice Gorsuch argued that the Court should “reconsider Humphrey’s Executor in toto” in a future case. As he has done previously, Justice Thomas also questioned the Supreme Court’s modern severability precedents and argued that the Court need not have addressed the severability question in this case.
  • Justice Kagan, joined by Justices Ginsburg, Breyer, and Sotomayor, dissented in part and would not have found a constitutional violation. The four dissenters argued that the Constitution allows for for-cause removal limits and says nothing about the President’s removal power, that financial regulators historically have had a degree of independence from Presidential oversight, and that the Court’s precedents have sustained other independent agencies. But the dissenters agreed that the Director’s statutory removal restrictions were severable.
  • The Court’s decision caps nearly a decade of litigation over the constitutionality of the CFPB’s structure. Gibson Dunn pioneered this litigation and handled the first constitutional challenge to the CFPB’s structure that produced a major separation of powers decision and ultimately resulted in the vacatur of a $109 million penalty imposed by the unconstitutionally structured agency. See PHH Corp. v. CFPB, 839 F.3d 1 (2016) (Kavanaugh, J.), on reh’g en banc, 881 F.3d 75 (D.C. Cir. 2018) (en banc). Gibson Dunn is also handling an en banc Fifth Circuit appeal that will further test the important issue of ratification that the Supreme Court expressly left open. See CFPB v. All American Check Cashing, Inc., No. 18-60302 (5th Cir.).

The Court's opinion is available here.

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June 26, 2020 |
California Supreme Court Holds That District Attorneys May Seek Statewide Civil Penalties and Restitution Under Unfair Competition Law

Click for PDF On June 25, 2020, the California Supreme Court issued its second major Unfair Competition Law (“UCL”) opinion of the term, unanimously deciding in Abbott Laboratories v. Superior Court, No. S249895, ___Cal.5th___, that local prosecutors have the power to seek civil penalties for violations in California that occur outside their territorial jurisdiction. According to the Court, the UCL “grants broad civil enforcement authority to district attorneys … consistent with the statute’s purpose and history.” (Id. at [p. 16].) While the Court acknowledged that its ruling could create conflicts of interest and duplicative enforcement among competing district attorneys, the decision and a three-Justice concurrence outlined a path for the Legislature to mitigate these negative consequences.

I.   Procedural Background of Abbott Laboratories

As summarized in Gibson Dunn’s previous client alert, the UCL empowers the Attorney General as well as any district attorney, any county counsel, and certain city attorneys to file a civil enforcement action on behalf of the People of the State of California.  (See Bus. & Prof. Code §§ 17204, 17206.)  Local prosecutors have claimed authority under the UCL to bring civil actions for injunctive and monetary relief alleging unfair competition violations occurring throughout the State of California—including beyond their territorial jurisdiction. In this case, the Orange County District Attorney sued various brand and generic pharmaceutical manufacturers and distributors under the UCL, alleging an unlawful conspiracy to prevent other generic manufacturers from launching a generic drug that would compete with Niaspan, a prescription medication used to help maintain healthier levels of cholesterol. As a result of the allegedly unlawful conspiracy, the District Attorney asserted that California consumers paid more than they otherwise would have for generic Niaspan. The District Attorney sought civil penalties not only for alleged violations that occurred in Orange County, but also for violations that occurred anywhere throughout California. Defendants moved to strike the complaint’s claims for monetary relief for violations outside of Orange County; the Superior Court denied that motion. Defendants sought writ relief, and a divided Court of Appeal vacated the Superior Court’s decision and ordered the claim for statewide civil penalties stricken. Emphasizing that the California Constitution recognizes that the Attorney General is “the chief law officer of the State,” the Court of Appeal majority reasoned that the UCL’s grant of standing to local prosecutors “cannot reasonably or constitutionally be interpreted as conferring statewide authority or jurisdiction to recover such monetary remedies beyond the county the district attorney serves, or restricting the Attorney General’s constitutional power to obtain relief on behalf of the entire state.” (Abbott Labs, Inc. v. Sup. Ct (2018) 24 Cal. App. 5th 1, 24–25.) The Court of Appeal further noted that “the text of the UCL provides no basis to conclude the Legislature intended to grant local prosecutors extraterritorial jurisdiction to recover statewide monetary relief” and that if the Legislature had wished to confer upon local prosecutors the same remedial authority given to the Attorney General, the UCL would have explicitly vested local prosecutors with such authority. (Id. at pp. 27–28.) The Supreme Court granted the Orange County District Attorney’s petition for review.

II.   A Divide Emerges Among State and Local Prosecutors

The amicus briefs filed in the Supreme Court manifested a notable divide among state and local prosecutors. The California District Attorneys Association and California Attorney General each filed a brief in support of Defendants, arguing that local district attorneys lack the power to seek civil penalties for conduct occurring outside their territorial jurisdiction. The Attorney General argued that the Orange County District Attorney’s reading of the UCL would create conflict and competition among local prosecutors each acting to obtain a greater share of remedies for their localities. Such a construction, argued the Attorney General, would “undercut the constitutional authority of the Attorney General as the State’s chief law officer.” The Attorney General argued instead for a reading that would “encourag[e] cooperation” and permit California to “speak with one voice in consumer law matters.” The District Attorneys Association expressed concern in its brief to the Court about reduced public accountability of local prosecutors who obtain relief for consumers outside their jurisdiction. The Association argued that “[a] district attorney who could exercise binding authority to alter or extinguish the rights of consumers in other counties would be subject to no democratic safeguards if he or she misused that authority.” Meanwhile, a coalition of City Attorneys and County Counsels—who do not fall under the broad oversight of the Attorney General (as do district attorneys)—and the League of Cities filed an amicus brief in support of the Orange County District Attorney’s position and in favor of permitting local prosecutors to exercise statewide jurisdiction.

III.   California Supreme Court Holds First Teleconference Oral Argument After COVID-19 Shelter-In-Place Order

On Tuesday, March 26, 2020, oral argument was held before the California Supreme Court.   Notably, it was one of the first teleconference hearings after COVID-19-related safer-at-home orders were issued. The argument centered around two themes: how to interpret the UCL’s silence on the issue presented, and the practical import of the Court’s ruling. Generally, the teleconference format worked well. While there were a few instances of delayed questions causing some cross-talk and confusion, the Court managed the argument well. In a departure from traditional practice, at the conclusion of each advocate’s argument, the Chief Justice invited each of the Justices to ask any remaining questions any of them had. Ultimately, the argument foreshadowed the Court’s opinions: Justice Liu appeared most skeptical of the practical concerns raised by Defendants and amici, and ultimately authored the Court’s decision ruling in favor of the Orange County District Attorney.

IV.   The Supreme Court’s Opinion

Justice Liu authored the unanimous opinion of the Court. Justice Kruger filed a separate concurrence in which Chief Justice Cantil-Sakauye and Justice Corrigan joined to outline their view that the UCL should be amended to provide for a more robust notice provision. All seven Justices (including Justice Fujisaki of the First Appellate District, who sat pro tem in place of Justice Groban, who was recused) agreed that “[t]he UCL does not preclude a district attorney, in a properly pleaded case, from including allegations of violations occurring outside as well as within the borders of his or her county,” confirming their ability to seek “civil penalties for violations occurring outside of the district attorney’s county as well as restitution on behalf of Californians who do not reside in the county.” (Abbott Laboratories, supra, ___Cal.5th___[p. 1, 11].)

A.   Justice Liu’s Opinion for the Court Holds That the “Text and Purpose of the UCL” Supports District Attorneys Exercising Statewide Authority

Justice Liu, writing for the Court, reasoned that the UCL uses “broad language” in authorizing courts to impose civil penalties “for each violation” and to make orders to restore to “any person in interest any money.” (Id. at [p. 12].) Reviewing the provisions contemplating statewide injunctions (sections 17203 and 17207), and those empowering courts to impose civil penalties (section 17206), the Court emphasized that “[t]he statute contains no geographic limitation on the scope of relief that courts may order in an enforcement action brought by a district attorney.” (Id.) The Court first distinguished Safer v. Superior Court (1975) 15 Cal.3d 230, cited by Defendants for the proposition that civil litigation by district attorneys must be specifically authorized by the Legislature. Justice Liu noted that “the district attorney is expressly authorized to maintain a civil action for either injunctive relief or civil penalties for acts of unfair competition” under the UCL. (Abbott Laboratories, supra, ___Cal.5th___[p. 10].) Next, the Court emphasized that “Safer says nothing about the scope of remedies that may be sought,” and was thus inapposite to the question before the Court. (Id.) Turning to the “text and purpose of the UCL,” Justice Liu made three points. (Id. at [p. 11].)   First, as noted above, the statute’s broad language, coupled with the lack of any geographic limitation, suggest no legislative “concern about the geographic scope of relief sought in an enforcement action by a district attorney.”  (Id. at [p. 13].) Here, the Court assumed that district attorneys may seek statewide injunctive relief under the UCL (and Defendants conceded as much in their brief). While the issue of statewide injunctive relief was not squarely before the Court, this assumption nevertheless guided the Court’s decision. Second, the Court noted that section 17206(c), which allocates “one-half of civil penalties in a statewide action [brought by the Attorney General] to the county in which the judgment was entered indicates that the Legislature did not design the civil penalty scheme to ensure an allocation of civil penalties to counties in accordance with the number of violations in each county.” (Id.) Third, the fact that section 17207(b) distinguishes “‘any county in which the violation occurs’ and ‘any county . . . where the injunction was issued’” for purposes of civil penalties imposed for violating injunctions suggests that the “Legislature knows how to write language limiting the award of civil penalties to the county in which the violation occurs”; here though, the Legislature “did not enact any such limitation.” (Id. at [p. 13-14].) Taken together, the Court held that “the text of the UCL grants broad civil enforcement authority to district attorneys, and this broad grant of authority is consistent with the statute’s purpose and history.” (Id. at [p. 14].) Next, the Court rejected Defendants’ argument that the California Constitution limited district attorneys’ enforcement authority to their districts’ boundaries, “find[ing] nothing in those provisions that constrains the Legislature’s prerogative to structure UCL enforcement so that a district attorney has authority to seek civil penalties and restitution for violations outside of his or her county.” (Id. at [p. 18].) Finally, the Court addressed the Attorney General’s amicus brief and the practical concerns it raised about political accountability, degradation of the Attorney General’s primary role in consumer protection, and a loss of inter-office cooperation. While Justice Liu “[did] not take [these concerns] lightly,” conceding that the Court’s decision may incentivize a race to the courthouse, the Court was “unable to conclude that the Legislature necessarily believed this concern outweighs the incentive that the scheme provides for district attorneys to bring enforcement actions that might otherwise not be brought at all.” (Id. at [p. 20, 22].) Further, the Attorney General’s “authority to intervene or take over the case” from a district attorney mitigated, in the Court’s view, any concerns about coordinated enforcement of the UCL. (Id. at [p. 22].) Indeed, at oral argument Justice Liu noted that Defendants failed to identify a case in which local prosecutors “ran amok” with such authority. Justice Liu’s opinion noted that the “pros and cons” of the result of this decision “is a matter of policy for the Legislature to decide,” adding that voters could “plac[e] an initiative on the ballot to restrict this authority for local prosecutors if they believe it is not sound policy.” (Id. at [p. 25].) In conclusion, Justice Liu was careful to outline the limits of the Court’s holding, writing that the Court did not “address whether a district attorney could bring a UCL claim for conduct occurring entirely outside the bounds of his or her county”; in the case before the Court, the Orange County District Attorney had alleged violations of the UCL both within and outside of Orange County. (Id. at [p. 26].)

B.   Justice Kruger’s Concurrence Emphasizes the “Gap in the Statutory Scheme”

Justice Kruger agreed with the Court’s reading of the UCL’s text and purpose. However, she wrote a separate concurrence, in which the Chief Justice and Justice Corrigan joined, to point out the “gap in the statutory enforcement scheme” that should be filled by the Legislature. (Abbott Laboratories, supra, ___Cal.5th___[conc. opn. of Kruger, J.], at [p. 1].) Indeed, at oral argument Justice Kruger repeatedly asked about the sufficiency of the notice provided to the Attorney General. Noting that the “current statutory scheme contains no mechanism to ensure notice to the Attorney General for trial proceedings,” Justice Kruger wrote that the “Legislature may wish to fill this gap by requiring that district attorneys and other public prosecutors serve the Attorney General with a copy of any UCL complaint whose prayer for relief seeks monetary relief for violations occurring beyond the borders of their respective jurisdictions.” (Id. at [p. 3].) Justice Kruger voiced concern that “absent an effective mechanism for coordinating efforts, [this decision] will inevitably create some practical challenges,” including the possibility of “district attorneys . . . rac[ing] each other to the courthouse and . . . enter[ing] settlements that maximize their own counties’ recoveries, potentially at the expense of consumers elsewhere in the state.” (Id. at [p. 1-2].)

V.   Implications for Future Cases and Outstanding Questions

The Court’s opinion and Justice Kruger’s concurrence firmly place the ball in the Legislature’s court to address any potential policy implications of the Court’s decision. Time will tell whether voters or the Legislature act swiftly to write into the UCL a means for coordinating enforcement actions or pull back on the authority of district attorneys to seek statewide monetary relief. In the meantime, the Court’s reading of the UCL establishes a significant incentive for district attorneys to bring UCL actions, given the potential financial windfall of statewide civil penalties. As a result, defendants should be prepared for the possibility of multiple and overlapping cases, brought not only by district attorneys, but also by other prosecutors. Overlapping suits will in turn increase the need for companies to effectively coordinate their defense of government enforcement actions with any parallel matters. Defendants should look carefully at how government enforcement cases interact with arbitrations, consumer class actions, and suits brought under the Private Attorneys General Act, Lab. Code. § 2699 et seq., and develop a cohesive unified strategy. With overlapping issues, defendants may need to consider arguments for stays, preclusion and other remedies. In addition to the issues of the power of district attorneys to prosecute purely extraterritorial violations and to seek statewide injunctive relief, an additional question not squarely presented by this case remains unanswered: does the Court’s decision extend to city attorneys and county counsels, over whom the Attorney General does not exercise supervisory authority? Indeed, the Court emphasized the potential problems resulting from its decision were mitigated because the Attorney General “has direct supervision over the district attorneys,” and “retains authority to intervene or take over the case.” (Abbott Laboratories, supra, ___Cal.5th___[p. 18-19, 22].) Defendants may therefore wish to carefully scrutinize any future enforcement matters brought by city attorneys and county counsels seeking civil penalties on a statewide basis. Further, in pursuing any reform to the UCL, the Legislature may wish to consider the different relationship the Attorney General has with district attorneys compared to city attorneys and county counsels.
For more information, please feel free to contact the Gibson Dunn lawyer with whom you usually work or any of the following attorneys listed below. Theodore J. Boutrous, Jr. - Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Daniel M. Kolkey - San Francisco (+1 415-393-8420, dkolkey@gibsondunn.com) Julian W. Poon - Los Angeles (+1 213-229-7758, jpoon@gibsondunn.com) Winston Y. Chan - San Francisco (+1 415-393-8362, wchan@gibsondunn.com) Michael Holecek - Los Angeles (+1 213-229-7018, mholecek@gibsondunn.com) Victoria L. Weatherford - San Francisco (+1 415-393-8265, vweatherford@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 25, 2020 |
High Court Should Review Goldman’s Maintenance Theory

Washington, D.C. partners Miguel Estrada and Mark Perry and associate Kellam Conover are the authors of "High Court Should Review Goldman's Maintenance Theory," [PDF] published by Law360 on June 24, 2020.

June 22, 2020 |
Supreme Court Limits Disgorgement Remedy In SEC Civil Enforcement Actions

Click for PDF Decided June 22, 2020 Liu v. Securities and Exchange Commission, No. 18-1501

Today, the Supreme Court held 8-1 that although the SEC may seek disgorgement in civil enforcement actions, the remedy must be limited to the wrongdoer’s net profits and be awarded for the benefit of victims. 

Background: When alleging securities fraud in a civil action, the SEC is authorized to seek civil penalties and any “equitable relief” that “may be appropriate or necessary for the benefit of investors.” 15 U.S.C. § 78u(d)(5). Here, the SEC alleged that Petitioners misappropriated millions of dollars of investor money after soliciting funds for the construction of a cancer-treatment center. Finding for the SEC, the district court imposed a civil penalty and ordered disgorgement equal to the full amount Petitioners raised from investors less the amount that remained in the corporate accounts for the project.

Petitioners objected that the disgorgement award failed to account for their business expenses. Petitioners relied on Kokesh v. SEC, 137 S. Ct. 1635 (2017), which held that a disgorgement order in an SEC enforcement action imposes a “penalty” for purposes of the applicable statute of limitations. Because courts of equity historically could not impose punitive sanctions, Petitioners reasoned, the court lacked statutory authority to impose the disgorgement remedy. But the Ninth Circuit disagreed, concluding that the proper amount of disgorgement was the entire amount raised minus the money paid back to investors.

Issue: Whether, and to what extent, disgorgement is statutorily authorized “equitable relief” in an SEC civil enforcement action.

Court's Holding: A disgorgement award in an SEC civil enforcement action is “equitable relief” so long as it does not exceed a wrongdoer’s net profits and is awarded for victims.

“[A] disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for victims is equitable relief permissible under § 78u(d)(5).

Justice Sotomayor, writing for the Court

What It Means:
  • The Supreme Court held that a disgorgement remedy may constitute “equitable relief” under 15 U.S.C. § 78u(d)(5), but only if limited to the wrongdoer’s net profits and awarded for victims. This holding, the Court noted, was consistent with the “circumscribed” power of courts of equity to strip wrongdoers of ill-gotten gains. The Court therefore vacated the Ninth Circuit’s judgment and remanded with instructions to ensure that any legitimate business expenses are deducted from the disgorgement award.
  • The opinion casts doubt on several SEC disgorgement practices that have appeared in recent decades. The Court observed that disgorgement awards are “in considerable tension” with equity practice when they (1) order the funds deposited in the U.S. Treasury instead of disbursing them to victims; (2) impose joint-and-several liability; or (3) decline to deduct business expenses that are legitimate or that have value independent of fueling a fraudulent scheme. The Court left those questions to the Ninth Circuit to address on remand.
  • The Court’s decision reinforces the need, in a variety of contexts, to examine and apply traditional limits on awarding “equitable relief.” The Court examined traditional equitable practice in concluding that courts of equity would not award more than the wrongdoer’s net profits to the victims of the offense.

The Court's opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the following practice leaders:

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Barry R. Goldsmith +1 212.351.2440 bgoldsmith@gibsondunn.com Richard W. Grime +1 202.955.8219 rgrime@gibsondunn.com Mark K. Schonfeld +1 212.351.2433 mschonfeld@gibsondunn.com
© 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 18, 2020 |
Supreme Court Rejects DHS’s Decision To Terminate DACA

Click for PDF Decided June 18, 2020 Department of Homeland Security, et al., v. Regents of the University of California, et al. and related cases, Nos. 18-587, 18-588, and 18-589

Today, in a 5-4 decision, the Supreme Court held that DHS’s decision to terminate the Deferred Action for Childhood Arrivals policy is unlawful. 

Background: Since 2012, the Deferred Action for Childhood Arrivals (“DACA”) policy has enabled undocumented individuals who arrived in the United States as children—including nearly 700,000 current recipients—to live and work here without fear of deportation, so long as they qualify and remain eligible for the policy. In September 2017, Acting Secretary of Homeland Security Elaine Duke terminated DACA based on the Attorney General’s determination that the policy was unlawful.

Respondents challenged DHS’s action, contending that the decision to rescind DACA was “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” in violation of the Administrative Procedure Act (“APA”), 5 U.S.C. § 706(2)(A), because DHS failed to explain or consider the costs of its policy change, and relied on an incorrect legal premise, i.e., that DACA is unlawful.

Gibson Dunn represented six individual DACA recipients in obtaining and defending on appeal the first nationwide preliminary injunction halting the termination of DACA. The Supreme Court granted certiorari to review the Ninth Circuit’s decision affirming that injunction and two other district court decisions enjoining or vacating DHS’s action. Gibson Dunn partner Ted Olson represented DACA recipients, businesses, and nonprofits challenging the policy in presenting oral argument before the Supreme Court.

Issue: Does the APA or the Immigration and Nationality Act (“INA”) preclude judicial review of the Secretary’s decision to terminate DACA? If the decision is reviewable, was it “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,” in violation of the APA?

Court's Holding: The Court held that DHS’s decision to terminate DACA is subject to judicial review and violated the APA.

“[W]hen so much is at stake, . . . the Government should turn square corners in dealing with the people.

Chief Justice Roberts, writing for the Court

Gibson Dunn Represented Respondents:

DACA Recipients Dulce Garcia; Miriam Gonzalez Avila; Saul Jimenez Suarez; Viridiana Chabolla Mendoza; Norma Ramirez; and Jirayut Latthivongskorn

What It Means:
  • The Court’s decision reinstates DACA for the immediate future, granting a significant victory to hundreds of thousands of individuals that currently enjoy or may be eligible for relief. As a result of the preliminary injunction obtained by Gibson Dunn, the large majority of DACA recipients have been able to renew their DACA applications during the more than two-year period since DHS announced its decision to terminate the program. Today’s decision secures that victory and restores the opportunity for new applicants to apply to the program for the first time. The decision also reinstates key aspects of the DACA policy, including the ability of DACA recipients to seek advance parole so that they can travel abroad with assurances that they will be permitted to return to the United States.
  • Although Dreamers may continue to live and work in the United States, they should be aware that this administration or a future administration could revoke DACA, provided that the agency meets the requirements for reasoned decisionmaking. The Court also did not decide the legality of the DACA policy. Unless Congress enacts permanent legislation to allow Dreamers to continue living and working in the country without fear of deportation, Dreamers’ fate will remain uncertain.
  • The Court held that the decision to rescind DACA was subject to judicial review notwithstanding the provision of the APA that precludes judicial review of agency decisions that are “committed to agency discretion by law.” 5 U.S.C. § 701(a)(2). In Heckler v. Chaney, 470 U.S. 821, 831 (1985), the Court held that this provision barred judicial review of an agency’s decision not to prosecute or initiate an enforcement proceeding. The Court determined that Chaney did not apply here because DHS’s decision to grant DACA to individuals went beyond simple non-enforcement and instead “created a program for conferring affirmative immigration relief.”
  • On the merits, the Court limited its analysis to the explanations that Acting Secretary Duke provided in her original September 2017 memorandum terminating DACA. The Court declined to consider a later memorandum in which Duke’s successor, Secretary Kirstjen Nielsen, offered “additional explanation” for the September 2017 memorandum. The Court explained that limiting judicial review of agency action to “the grounds that the agency invoked when it took the action” promotes “agency accountability, “ensur[es] that parties and the public can respond fully and in a timely manner to an agency’s exercise of authority,” and “instills confidence that the reasons given are not simply convenient litigating positions.” In light of this holding, an agency that seeks to provide “new justifications” for a prior policy decision may now be required to issue “a new decision” before a court can consider those justifications.
  • The Court found two defects in Acting Secretary Duke’s explanation of DHS’s policy change: She never considered alternatives to the outright rescission of DACA, and she never addressed the effect of the termination of DACA on the reliance interests of DACA recipients and their families, schools, and employers. The Court emphasized that before rescinding a policy “in full,” an agency must consider available alternatives, including a partial repeal. And while it was up to DHS to determine whether reliance on DACA was warranted, and what weight to give that reliance, DHS never made that determination.

The Court's opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders:

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Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Theodore B. Olson +1 202.955.8668 tolson@gibsondunn.com
© 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 15, 2020 |
Supreme Court Holds That Title VII’s Prohibition On Discrimination Because Of Sex Includes Sexual Orientation And Transgender Status Discrimination

Click for PDF Decided June 15, 2020 Bostock v. Clayton County, Georgia, No. 17-1618; Altitude Express, Inc. v. Zarda, No. 17-1623; and R.G. & G.R. Harris Funeral Homes, Inc. v. Equal Employment Opportunity Commission, No. 18-107

Today, the Supreme Court held 6-3 that the prohibition on sex discrimination in Title VII of the Civil Rights Act of 1964 encompasses employment discrimination because of a person’s sexual orientation or transgender status. 

Background: Title VII of the Civil Rights Act of 1964 prohibits employers from discriminating against employees “because of . . . sex.” 42 U.S.C. § 2000e-2(a)(1). Donald Zarda was a former skydiving instructor at Altitude Express. Gerald Bostock worked as a child welfare services coordinator for Clayton County, Georgia. Aimee Stephens worked at R. G. & G. R. Harris Funeral Homes and originally presented as a male, but later told her employer that she planned to live and work as a woman. All three were fired allegedly because of their sexual orientation or transgender status, and they initiated sex discrimination claims against their former employers under Title VII. In Zarda’s case, the Second Circuit held that discrimination based on sexual orientation is a “subset of sex discrimination.” In Bostock’s case, the Eleventh Circuit held that Title VII does not apply to discrimination based on sexual orientation and affirmed the dismissal of Bostock’s Title VII claim. And in Stephens’ case, the Sixth Circuit held that Title VII applies to discrimination on the basis of transgender status.

Issue: Whether discrimination against an employee because of sexual orientation or transgender status constitutes prohibited discrimination within the meaning of Title VII.

Court's Holding: Yes. Title VII’s prohibition on discrimination based on sex encompasses sexual orientation and transgender status. An employer violates Title VII when it discharges an employee in part because of sexual orientation or transgender status.

“[I]t is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex.

Justice Gorsuch, writing for the majority

What It Means:
  • Justice Gorsuch’s majority opinion, which was joined by Chief Justice Roberts and Justices Ginsburg, Breyer, Sotomayor, and Kagan, was grounded in the text and the ordinary public meaning of the statutory terms at the time of enactment. Justice Gorsuch reasoned that Title VII’s prohibition on employment discrimination “because of . . . sex” necessarily encompasses discrimination on the basis of sexual orientation or transgender status because “it is impossible to discriminate against a person for being homosexual or transgender without discriminating against that individual based on sex,” slip op. 9, and therefore an employer who fires an employee based on sexual orientation and transgender status “inescapably intends to rely on sex in its decisionmaking,” id. at 11.
  • Justice Gorsuch acknowledged that Title VII’s prohibition on discrimination “because of . . . sex” may have been originally intended to cover only gender-based discrimination, not discrimination based on sexual orientation or transgender status. Echoing the late Justice Scalia’s reasoning in Oncale v. Sundowner Offshore Services, Inc., 523 U.S. 75 (1998), where the Court held that same-sex sexual harassment can violate Title VII, Justice Gorsuch explained that even if Title VII’s application in these cases reaches “beyond the principal evil” legislators may have intended or expected to address, the fact that a statute is applied in a new context does not render its meaning ambiguous.
  • In dissent, Justice Alito, joined by Justice Thomas, emphasized that there is no evidence that the members of Congress who voted for Title VII in 1964 would have contemplated that it prohibited discrimination based on sexual orientation or transgender status. In a separate dissent, Justice Kavanaugh stated that he believed the majority’s interpretation violated the separation of powers because the responsibility to amend Title VII belongs to Congress and the President in the legislative process, not the courts.
  • The Court’s opinion expressly cabins its reach to Title VII, perhaps reducing the likelihood that the decision will have an impact in other areas involving different statutes, such as Title IX or the Americans with Disabilities Act. The Court also noted that it was not addressing questions about “sex-segregated bathrooms, locker rooms, and dress codes.” Slip op. 31. And the Court acknowledged that the Religious Freedom Restoration Act of 1993 “might supersede Title VII’s commands in appropriate cases.” Id. at 32. These issues are likely to arise in future cases.

The Court's opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com

Related Practice: Labor and Employment

Catherine A. Conway +1 213.229.7822 cconway@gibsondunn.com Jason C. Schwartz +1 202.955.8242 jschwartz@gibsondunn.com
© 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 1, 2020 |
Supreme Court Holds That The New York Convention Permits The Use Of Equitable Estoppel To Enforce An Arbitration Agreement Among Nonsignatories

Click for PDF Decided June 1, 2020 GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC, No. 18-1048

Today, the Supreme Court unanimously held that the New York Convention permits the use of state-law equitable estoppel doctrines to compel arbitration between parties that did not sign the arbitration agreement. 

Background: ThyssenKrupp entered into a series of contracts with F.L. Industries to buy three cold rolling mills for use in the manufacture of steel products. Each contract contained a clause calling for arbitration of all “disputes arising between both parties” to be arbitrated in Germany. The contracts defined “Parties” to include the “Buyer” (ThyssenKrupp) and “Seller” (F.L. Industries). They further defined “Seller” and “Parties” to include subcontractors.

F.L. Industries subcontracted with GE Energy to supply motors for the mills. The motors allegedly failed, and Outokumpu (who purchased the manufacturing plant from ThyssenKrupp) sued GE Energy in Alabama state court. After removing the case to federal court, GE Energy moved to compel arbitration in Germany under the arbitration agreement in the ThyssenKrupp-F.L. Industries contracts and the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). The district court compelled arbitration, ruling that the contracts were signed, written agreements between ThyssenKrupp and F.L. Industries and that GE Energy, as a subcontractor, was not excluded from the arbitration provision.

The Eleventh Circuit reversed, holding that because the New York Convention applied only to parties that actually sign the arbitration agreement the Convention precluded the use of equitable estoppel doctrines to compel arbitration among parties that did not sign the arbitration agreement.

Issue: Whether the New York Convention permits the use of equitable estoppel to compel arbitration between parties that did not actually sign the arbitration agreement.

Court's Holding: Yes. The New York Convention does not preclude parties who did not sign an arbitration agreement from seeking to compel arbitration under state-law equitable estoppel doctrines.

“[T]he Convention requires courts to rely on domestic law to fill the gaps; it does not set out a comprehensive regime that displaces domestic law.

Justice Thomas, writing for the unanimous Court

What It Means:
  • The Court’s analysis focused on the text of the New York Convention, a 1958 treaty designed to facilitate the recognition and enforcement of international arbitration agreements. Because the New York Convention is silent on whether parties who did not sign an arbitration agreement can compel arbitration, the Court concluded that nothing in the Convention’s text prohibits the application of equitable estoppel. The Court’s decision therefore aligned the enforcement of international arbitration agreements under the New York Convention with the enforcement of domestic arbitration agreements under the Federal Arbitration Act, which permits parties to use equitable estoppel and other state-law doctrines when seeking to enforce arbitration agreements.
  • The Court’s decision is consistent with the Court’s broader trend of favoring the resolution of disputes through arbitration. The Court also noted that its decision is consistent with the weight of authority from other countries that have signed the New York Convention and that permit enforcement of arbitration agreements by nonsignatories.
  • The Court did not elaborate on the conditions that must be satisfied to compel arbitration under equitable estoppel, or the body of law governing those conditions. Instead, the Court remanded the case for the lower courts to determine those issues.

The Court's opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Matthew D. McGill +1 202.887.3680 mmcgill@gibsondunn.com

Related Practices: International Arbitration and Enforcement

Robert L. Weigel +1 212.351.3845 rweigel@gibsondunn.com Rahim Moloo +1 212.351.2413 rmoloo@gibsondunn.com
© 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 1, 2020 |
Supreme Court Upholds The Appointments Of The Members Of The Puerto Rico Financial Oversight And Management Board

Click for PDF Decided June 1, 2020 Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC, Nos. 18-1334, 18-1475, 18-1496, 18-1514, 18-1521

Today, the Supreme Court held that the appointments of the members of the Financial Oversight and Management Board for Puerto Rico did not violate the Appointments Clause of the United States Constitution. 

Background: The Appointments Clause of the United States Constitution enables the president to appoint principal “Officers of the United States” only with the “Advice and Consent of the Senate.”  U.S. Const. art. II, § 2, cl. 2.  But in the Puerto Rico Oversight, Management, and Economic Stability Act, Congress allowed the President to appoint members of the Financial Oversight and Management Board for Puerto Rico without Senate confirmation.  The statute, enacted in 2016 to address Puerto Rico’s fiscal emergency, empowered Board members to initiate and oversee a massive restructuring of Puerto Rico’s public debt.  The statute created the Board within the government of Puerto Rico pursuant to Congress’s Article IV power to “make all needful Rules and Regulations respecting the Territory … belonging to the United States,” U.S. Const. art. IV, § 3, cl. 2, and provided that the Board was not part of the federal government.

Creditors moved to dismiss certain restructuring proceedings on the ground that the Board’s members were unconstitutionally appointed.  The district court denied the motions, but the First Circuit reversed, holding that Board members are Officers of the United States because they exercise significant authority traced exclusively to federal law.

Issue: Did the appointments of the members of the Financial Oversight and Management Board for Puerto Rico violate the Appointments Clause?

Court's Holding: No. Because the Board members’ statutory duties are primarily local in nature and exercised under the Territories Clause, they are not “Officers of the United States.”

The Appointments Clause “has never been understood to cover those whose powers and duties are primarily local in nature and derive from the [Territories Clause].

Justice Breyer, writing for the Court

Gibson Dunn Represented Respondents/Cross-Petitioners: Aurelius Investment, LLC and Assured Guaranty Corp.

What It Means:
  • The Court first concluded that the Appointments Clause applies to all Officers of the United States, including those who exercise power in or related to Puerto Rico.  The Appointments Clause, the Court observed, contains “no Article IV exception.”
  • The Court ultimately determined, however, that Board members are not Officers of the United States because they exercise “primarily local powers and duties” under Article IV.  The Court emphasized the long history of territorial officials with primarily local responsibilities being selected via methods that would not satisfy the Appointments Clause’s requirements.
  • The Court acknowledged that the Board has “broad investigatory powers,” but determined that these powers are backed by Puerto Rican law, not federal law. The Court also acknowledged that some Board actions “may have nationwide consequences,” but reasoned that the same is true of many actions taken by Governors or other local officials. In short, the Court summarized, the Board possesses “considerable power,” but that power primarily concerns local matters.
  • The decision leaves many questions unanswered about the degree and kind of federal responsibility necessary to make a nominally “territorial” official an Officer of the United States. It also is uncertain how courts will determine whether the duties exercised by an official with both federal and local responsibilities are “primarily local.”

The Court's opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Theodore B. Olson +1 202.955.8668 tolson@gibsondunn.com
Matthew D. McGill +1 202.887.3680 mmcgill@gibsondunn.com Helgi C. Walker +1 202.887.3599 hwalker@gibsondunn.com Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com

June 1, 2020 |
Supreme Court Holds That ERISA Defined-Benefit Pension Plan Participants Do Not Have Article III Standing To Sue For Fiduciary Breach

Click for PDF Decided June 1, 2020 Thole v. U.S. Bank, N.A., No. 17-1712

Today, the Supreme Court held 5-4 that participants in defined-benefit pension plans lack Article III standing to sue under ERISA for alleged breach of fiduciary duties because, whether or not they prevail in the action, they will receive the same payments for the rest of their lives. 

Background: Section 502(a)(2) and (a)(3) of the Employee Retirement Income Security Act of 1974 (ERISA), 29 U.S.C. § 1132(a)(2) and (a)(3), authorize civil actions for breach of fiduciary duty with respect to  employee pension benefit plans. Petitioners are participants in U.S. Bank’s defined-benefit pension plan, which guarantees lifetime fixed periodic payments. Although petitioners have received all payments to which they are entitled, they sued U.S. Bank for breach of fiduciary duty, alleging that plan fiduciaries did not appropriately manage the plan’s assets, causing the assets to fall below the minimum funding level that ERISA requires, and that investment of plan assets in mutual funds offered by a U.S. Bank subsidiary caused the plan to pay higher investment fees than it would have paid for other, similar mutual funds. U.S. Bank moved to dismiss, arguing that petitioners lacked Article III standing because they did not suffer an injury-in-fact. The district court granted the motion. The Eighth Circuit affirmed, but not on Article III grounds. The Court held that ERISA does not permit defined-benefit plan participants to sue for alleged breach of fiduciary duty when they have received all benefits to which they are entitled under the plan.

Issues: Whether an ERISA defined-benefit plan participant or beneficiary can demonstrate Article III standing to bring claims alleging breach of fiduciary duty under ERISA Section 502(a)(2) or (a)(3) when the participants and beneficiaries have received all benefits to which they are contractually entitled.

Court's Holding: No. A participant or beneficiary in a defined-benefit ERISA plan who has received all vested benefits—and who has not shown a “substantially increased risk that the plan and employer would both fail”—cannot show the requisite injury-in-fact for Article III standing to sue for alleged breach of fiduciary duty.

“If [petitioners] were to win this lawsuit, they would still receive the exact same monthly benefits that they are already slated to receive, not a penny more. The [petitioners] therefore have no concrete stake in this lawsuit.

Justice Kavanaugh, writing for the majority

What It Means:
  • Explaining that “[t]here is no ERISA exception to Article III,” a majority of the Court—the Chief Justice and Justices Thomas, Alito, Gorsuch, and Kavanaugh—held that petitioners lacked Article III standing “for a simple, commonsense reason: They have received all of their vested pension benefits so far, and they are legally entitled to receive the same monthly payments for the rest of their lives.” Petitioners also did not plausibly allege that “plan underfunding” created a “substantially increased risk” that the plan or employer “would both fail,” thereby jeopardizing future pension benefits.
  • The Court rejected petitioners’ argument, based on trust-law principles, that they have an equitable or property interest in the plan’s assets, or the “financial integrity” of the plan. The benefits of trust beneficiaries depend on how well the trust is managed. By contrast, “a defined-benefit plan is more in the nature of a contract,” and “[t]he plan participants’ benefits are fixed and will not change, regardless of how well or poorly the plan is managed.”
  • The Court also held that petitioners lacked standing to sue “as representatives of the plan itself” because they had not been “legally or contractually appointed to represent the plan.” Going forward, fiduciary breach claims concerning defined-benefit plans likely will need to be brought by the Department of Labor or co-fiduciaries.
  • The Court’s ruling means that beneficiaries of ERISA defined-benefit pension plans generally will not be able to sue for breach of fiduciary duty unless the plan has failed to make required benefits payments, or it is likely that the alleged misconduct will render the plan insolvent.
  • Although the Court was careful to distinguish defined-contribution plans, today’s opinion could impact other types of ERISA claims. For example, in cases challenging the administration of health benefits, the Court’s ruling may cast doubt on plaintiffs’ attempts to evade the limits on class certification by claiming class-wide breaches of fiduciary duty without tying those allegations to a class-wide deprivation of benefits.

The Court's opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com

Related Practice: Class Actions and Employee Benefits

Richard J. Doren +1 213.229.7038 rdoren@gibsondunn.com Heather L. Richardson +1 213.229.7409 hrichardson@gibsondunn.com
Geoffrey Sigler +1 202.887.3752 gsigler@gibsondunn.com Daniel J. Thomasch +1 212.351.3800 dthomasch@gibsondunn.com
© 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 19, 2020 |
Recent Constitutional Litigation Challenging Governmental Responses to the COVID-19 Pandemic

Click for PDF I. Overview In previous alerts, we discussed the constitutional limitations on governmental responses to COVID-19 under the Takings, Contracts, Due Process, and Equal Protection Clauses of the U.S. Constitution, and have also considered how the constitutional right to travel and the Dormant Commerce Clause limits governmental actors.[1] A number of businesses and others subject to COVID-19 regulations have now filed suit challenging governmental actions as unconstitutional, including under some of the same theories we identified in these prior alerts.  Some plaintiffs have alleged that state and local responses to the COVID-19 pandemic, particularly shut-down orders, have effected unconstitutional takings without just compensation, are arbitrary and irrational and deprive them of fair notice and equal protection, and violate their right to travel.  Other plaintiffs have brought Freedom of Assembly, Association, and Petition claims under the First Amendment, while others have raised Dormant Commerce Clause objections or challenges under the Republican Guarantee Clause. So far, while all courts have recognized that constitutional restrictions bind governmental actors even during emergencies, plaintiffs’ challenges have had mixed success.  Some courts have struck down governmental orders, finding that the particular action constituted governmental overreach.  And in other instances, governments have elected to resolve litigation by rescinding the challenged action before any final ruling.  Other courts have deferred to governmental actions taken in the midst of a pandemic, declining to enjoin the action or strike it down.  This is a fast-moving environment, and many of the cases discussed below were decided on preliminary motions, so we should continue to see a development in the jurisprudence as the cases progress.  And because the majority of the constitutional challenges are still pending, there remains much opportunity for the development of additional caselaw in these complex areas of constitutional law. Below is a description of some of the recent cases challenging COVID-19-related governmental actions on constitutional grounds.[2] II. Recent Constitutional Challenges To COVID-19-Related Governmental Acts 1. Some plaintiffs have met with success in challenging COVID-19-related orders. On May 6, 2020, a Massachusetts federal court entered a temporary restraining order enjoining the Massachusetts Attorney General from enforcing a COVID-19-related regulation that had banned debt collectors from telephonic communications and from initiating enforcement actions.  ACA Int’l v. Healey, No. CV 20-10767-RGS, 2020 WL 2198366 (D. Mass. May 6, 2020).  The court held that the regulation “impose[d] a flat ban on a particular medium of speech (telephone communications) involving a particular subject matter (the solicitation of payment of a debt) by a particular subset of those persons (debt collectors) who engage in that type of speech,” and that the regulation did not add anything to existing consumer protections “other than an unconstitutional ban on one form of communication.”  Id. at *5, *8.  In addition, the regulation’s prohibition against initiating lawsuits violated the constitutional guarantee of access to the courts embedded in the First Amendment’s right to petition the government for redress of grievances.  Id. *8–*9. Another case preliminarily enjoined a stay-at-home order because it violated the right to travel.  By executive order in March 2020, the Governor of Kentucky had banned Kentucky residents from traveling out of state with only a few exceptions.  Roberts v. Neace, No. 2:20-CV-054 (WOB-CJS), 2020 WL 2115358, at *1 (E.D. Ky. May 4, 2020).  The district court held that “[t]he restrictions infringe on the basic right of citizens to engage in interstate travel.”  Id. at *4.  The court noted that the constitutional right to travel from one state to another “is ‘virtually unconditional.’”  Id. (quoting  Shapiro v. Thompson, 394 U.S. 618, 643 (1969)).  And the order’s restrictions, the court concluded, were not narrowly tailored, given that the order restricted even minimal travel to a neighbouring state, while allowing otherwise identical travel within the state.  Id.  Moreover, individuals who lived close to the border would be prohibited from their normal travel across state lines.  Id.  Finally, the court noted that check-points would have to be set up at all entrances to the state, with quarantine facilities to accommodate the thousands of individuals crossing the border.  Id.   In response to the ruling, the Governor rescinded the Executive Order and issued a new one that “replaced the mandatory language related to travel and self-quarantining with more permissive language.”  W.O. v. Beshear, No. 3:20-CV-00023-GFVT, 2020 WL 2314880, at *1 (E.D. Ky. May 9, 2020). Other courts have struck down COVID-19 regulations based on claims of executive overreach rooted in state constitutional law and related principles.  For example, on May 13, 2020, the Wisconsin Supreme Court struck down an order issued by the Secretary of the Wisconsin Department of Health Services requiring all people to remain in their homes, prohibiting all non-essential travel, and closing all non-essential businesses.  The court ruled that the order was unenforceable because the Secretary did not follow the statutory rulemaking procedures, and exceeded her statutory authority.  Wis. Legislature v. Palm, No. 2020-AP-765-OA, 2020 WL 2465677 (Wis. May 13, 2020).  Several Justices also noted that allowing the Secretary to make rules and enforce them without going through the rulemaking process would violate the Wisconsin Constitution’s separation of powers.  See id. at *14 (R.G. Bradley, J., concurring); id. at *31 (Kelly, J., concurring). In other cases, the governmental entity has chosen to avoid litigation by rescinding its restriction after plaintiffs brought their challenge and prior to a final ruling from the court.  For example, after the Michigan Governor’s office prohibited the use of motorized boating, a conservation group brought suit, arguing that the ban violated the Equal Protection Clause by irrationally singling out motorized boating, that it arbitrarily infringed on the right to travel, and that it ran afoul of the Dormant Commerce Clause by burdening interstate commerce and the navigation of interstate waterways.  After the lawsuit was filed, the Governor rescinded the motorboat ban, and the plaintiff voluntarily dismissed its suit.  See Mich. United Conservation Clubs v. Whitmer, No. 1:20-cv-00335 (W.D. Mich.). Similarly, an association of landscapers and garden-supply retailers filed suit to enjoin the Michigan Governor’s Order prohibiting the operation of businesses that require workers to leave their homes or places of residence.  The association argued that the order unduly burdened interstate commerce in violation of the Dormant Commerce Clause, violated the right to travel, and amounted to an uncompensated taking.  Although the court declined to issue a temporary restraining order, it set the case for full briefing, noting that it “has concerns about the application of the Executive Order to landscaping services,” and acknowledging that “Plaintiffs have a point that lawn care can largely be performed alone or while maintaining an appropriate social distance.”  Order, Mich. Nursery & Landscape Ass’n v. Whitmer, No. 1:20-cv-331, ECF No. 19 (W.D. Mich., Apr. 22, 2020).  Two days later, the Governor modified her order and allowed gardeners and landscapers to resume their work. In one recently filed high-profile challenge, Tesla sued Alameda County, arguing that the County’s local orders halting all business activities conflict with state orders allowing all businesses involving federal critical infrastructure—including Tesla—to continue operating.  The local order, Tesla argued, deprives regulated parties of fair notice in violation of due process, given its conflict with state orders; violates equal protection by subjecting Tesla’s Alameda factory to different standards than the Tesla factories in neighbouring counties; and is pre-empted by the state-wide order.  Tesla, Inc. v. Alameda Cty., 4:20-cv-03186 (N.D. Cal.).  Only a few days later, Alameda County allowed Tesla’s assembly plant to reopen with enhanced safety precautions.  See Chase DiFeliciantonio, Alameda County Agrees to Let Tesla Reopen If Certain Conditions Are Met, S.F. Chron. (May 12, 2020), available at https://www.sfchronicle.com/business/article/Alameda-County-orders-Tesla-s-Fremont-plant-to-15264761.php. These cases confirm that, as we noted in our prior alerts, courts will continue to scrutinize governmental actions in light of constitutional limits even during a pandemic.  When those regulations violate constitutional requirements, restrict activity in an irrational manner, or go well beyond restrictions necessary to address the problem at hand, courts will step in.  And at a certain point courts may start to feel COVID-19 “fatigue,” in which they look on further or continued governmental restrictions with increasing skepticism.  Additionally, the very act of initiating a lawsuit can have the beneficial effect of forcing the governmental actor to reconsider the challenged regulation, and either narrow its scope or even rescind it altogether. 2. Other plaintiffs have been less successful. For example, inFriends of DeVito v. Wolf, No. 68 MM 2020, 2020 WL 1847100 (Pa. Apr. 13, 2020), several businesses challenged the Pennsylvania Governor’s Order closing the physical operations of all non-life-sustaining businesses.  The Plaintiffs argued that the Order constituted a taking without just compensation, and that it violated the Constitution’s guarantee of procedural due process and the freedom of assembly.  The court rejected these arguments, reasoning that the Order results in only a temporary loss of the use of the plaintiff’s business premises, that petitioners were entitled only to the post-deprivation process that they received, and that the order does not restrict plaintiffs’ ability to assemble telephonically or online.  The Plaintiffs applied for a stay with the United States Supreme Court, which was denied; their petition for a writ of certiorari remains pending.  See Friends of Devito v. Wolf, No. 19-1265 (U.S.). In Hartman v. Acton, a federal court in Columbus, Ohio declined a bridal shop owner’s request for a temporary restraining order against the Ohio Department of Health’s stay-at-home order.  No. 2:20-CV-1952, 2020 WL 1932896 (S.D. Ohio Apr. 21, 2020).  The court first held that the order did not violate procedural due process because “[a] person adversely affected by a law of general applicability has no due process right to a hearing since the law’s generality provides a safeguard that is a substitute for procedural protections.”  Id. at *8 (internal quotation marks omitted).  The court distinguished those recent cases that had issued temporary restraining orders against governmental actions closing abortion clinics (see, e.g., Preterm-Cleveland v. Att’y Gen. of Ohio, No. 1:19-CV-00360, 2020 WL 1932851 (S.D. Ohio Mar. 30, 2020)) or church services (see, e.g., On Fire Christian Ctr., Inc. v. Fischer, No. 3:20-CV-264-JRW, 2020 WL 1820249 (W.D. Ky. Apr. 11, 2020)) because those orders “implicat[ed] a fundamental right,” and also were not generally applicable, Hartman, 2020 WL 1932896, at *9. Another recent case outlined the basis for deferring to governmental action during a pandemic.  In SH3 Health Consulting, LLC v. Page, an antique store and a gym sought to enjoin COVID-19 stay-at-home orders issued by city and county officials that required “all businesses, other than essential businesses, to cease virtually all activities,” arguing that those orders violated their right to assemble and associate, and their due process rights.  No. 4:20-cv-00605-SRC, 2020 WL 2308444, at *2–*3 (E.D. Mo., May 8, 2020).  The court first noted the Supreme Court’s ruling in the context of the smallpox epidemic at the beginning of the twentieth century that, “in a public health crisis, a state may implement emergency measures that curtail constitutional rights so long as the measures have at least some ‘real or substantial relation’ to the public health crisis and are not ‘beyond all question, a plain, palpable invasion of rights secured by the fundamental law.’”  Id. at *6 (quoting Jacobson v. Massachusetts, 197 U.S. 11, 31, 38 (1905)) (some internal quotation marks omitted).  Applying this standard, the court held that there was no violation of the right to assemble, because the orders did not prevent plaintiffs from assembling “through a video call or group chat over the internet.”  Id. at *8.  Similarly, Plaintiffs may still associate with their customers “[t]hrough social media, email, blogs, and telephones,” and “Plaintiffs can discuss whatever they would like with whomever they would like.”  Id.  As for Plaintiffs’ Due Process argument, the court held that, “within the broad limits of the Jacobson test,” the state may “order businesses to curtail activities to protect the public health and welfare.”  Id. at *10. 3. Still other challenges are waiting on a ruling. For example, a New York law firm has sued the Governor and Attorney General of New York, alleging that, although it was designated as an “essential business,” state officials had been investigating it and issuing cease-and-desist letters, calling for the firm to stop employees from coming to the office.  The firm has brought a wide range of claims, alleging that the actions of state officials have violated the Dormant Commerce Clause by burdening the law firm’s ability to engage in interstate commerce, the Contracts Clause by impeding the law firm’s ability to carry out its contracts, and the Due Process, Equal Protection, and Takings Clauses.  See Hoganwillig, PLLC v. James, No. 20-cv-00577 (W.D.N.Y.). Businesses in Pennsylvania have brought a class action challenging the Governor’s closure orders as violative of the Takings Clause, as well as their substantive due process—because the order arbitrarily deprives plaintiffs of their property rights—and procedural due process rights.  Schulmerich Bells, LLC v. Wolf, 2:20-cv-01637 (E.D. Penn.).  And one recently filed case brought as a class action by a stone-working business that was deemed nonessential challenges the Governor of New York’s shutdown orders as violating the Contracts Clause because they impair the classes’ ability to fulfill obligations under contracts entered into prior to the order.  Omnistone Corp. v. Cuomo, 2:20-cv-02153 (E.D.N.Y.).  The court denied plaintiffs’ request for a temporary restraining order, and set their preliminary-injunction motion for briefing.  Order, Omnistone Corp. v. Cuomo, 2:20-cv-02153-GRB-SIL, ECF No. 18 (E.D.N.Y. May 15, 2020). In Maryland, in another pending case, a collection of businesses and individuals have challenged the Governor’s COVID-19 orders that individuals stay at home and not enter any businesses other than those deemed “essential,” arguing that the order infringes on their First Amendment rights to free speech and peaceable assembly, violates equal protection by arbitrarily treating them differently from others who are similarly situated, takes their property without just compensation by shuttering their businesses, and unlawfully interferes with interstate commerce in violation of the Dormant Commerce Clause.  Additionally, plaintiffs argue that the order violates the Republican Guarantee Clause because the executive is adopting and enforcing regulations that were not enacted by democratically elected legislators.  Antietam Battlefield KOA, v. Hogan, 1:20-cv-01130 (D. Md.).  These are just some of the many recently filed cases challenging business-shutdown and stay-at-home orders.  Others include pending lawsuits brought by beauty salons, Professional Beauty Federation of California v. Newsom, 2:20-cv-04275 (C.D. Cal., filed May 12, 2020), landlords, Behar v. Murphy, 3:20-cv-05206-FLW-DEA (D.N.J., filed Apr. 28, 2020), lounge restaurants, Amato v. Elicker, 3:20-cv-00464 (D. Conn., filed Apr. 3, 2020),  and other businesses, see, e.g., Gondola Adventures, Inc. v. Newsom, 2:20-cv-03789 (C.D. Cal., filed Apr. 24, 2020). III. Conclusion The broad range of outcomes in the constitutional challenges to COVID-19-related governmental actions that have already been resolved reinforces that the relevant constitutional analysis is highly fact-specific.  But the successful lawsuits listed above demonstrate that even during a pandemic, governmental action is not immune from constitutional scrutiny. As governmental actors at the local, state, and federal levels continue to take actions in response to COVID-19, private parties, businesses and others subject to COVID-19 regulations should be aware of the possible relief that constitutional litigation may offer. ____________________   [1]   See Gibson Dunn’s May 1, 2020 Client Alert, The Constitutional Consequences of Governmental Responses to COVID-19: The Right to Travel and the Dormant Commerce Clause, https://www.gibsondunn.com/the-constitutional-consequences-of-governmental-responses-to-covid-19-the-right-to-travel-and-the-dormant-commerce-clause; Gibson Dunn’s April 15, 2020 Client Alert, Constitutional Implications of Rent- and Mortgage-Relief Legislation Enacted in Response to the COVID-19 Pandemic, https://www.gibsondunn.com/constitutional-implications-of-rent-and-mortgage-relief-legislation-enacted-in-response-to-the-covid-19-pandemic; Gibson Dunn’s March 27, 2020 Client Alert, Constitutional Implications of Government Regulations and Actions in Response to the COVID-19 Pandemic, https://www.gibsondunn.com/constitutional-implications-of-government-regulations-and-actions-in-response-to-the-covid-19-pandemic.   [2]   This Alert focuses on constitutional litigation brought by businesses and therefore does not discuss the COVID-19-related cases involving issues such as prison conditions, voting rights, abortion access, and church attendance.


The following Gibson Dunn lawyers prepared this client update: Avi Weitzman, Mark A. Perry, Akiva Shapiro, Lochlan Shelfer, Andrew V. Kuntz, Andrew D. Ferguson, and Marjorie G. McLean. Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. For additional information, please contact any member of the firm’s Coronavirus (COVID-19) Response Team or its Appellate or Litigation practice groups, or the following authors: Avi Weitzman - New York (+1 212-351-2465, aweitzman@gibsondunn.com) Mark A. Perry - Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Akiva Shapiro - New York (+1 212.351.3830 , ashapiro@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 18, 2020 |
Supreme Court Holds That Amendments To The Foreign Sovereign Immunities Act Retroactively Authorized Punitive Damages Against Foreign State Sponsors Of Terrorism

Click for PDF Decided May 18, 2020 Opati v. Republic of Sudan, No. 17-1268

Today, the Supreme Court held 8-0 that the Foreign Sovereign Immunities Act (“FSIA”) amendments of 2008 authorize punitive damages in suits against foreign states based on conduct predating the amendments. 

Background: In 1998, al Qaeda set off truck bombs outside the United States embassies in Kenya and Tanzania, killing or injuring thousands. Victims sued Sudan under the FSIA’s “terrorism exception” to sovereign immunity, claiming that the nation materially supported the bombings by sheltering al Qaeda. As originally enacted in 1996, the terrorism exception did not create a cause of action against foreign states, leaving these claims to proceed under state-law causes of action. But in 2008, Congress amended the exception to (1) create a private cause of action against foreign states for punitive damages and other remedies, 28 U.S.C. § 1605A(c); and (2) allow claims based on pre-amendment conduct to proceed under this cause of action, 2008 National Defense Authorization Act § 1083(c). The district court ultimately awarded the plaintiffs billions of dollars in damages, including $4.3 billion in punitive damages. But the D.C. Circuit held that the 2008 FSIA amendments did not authorize punitive damages for pre-amendment conduct with sufficient clarity to overcome the presumption against retroactive legislation. Because the claims against Sudan arose out of pre-amendment conduct, the court vacated the punitive damages award. The United States supported the plaintiffs as amicus curiae.

Issue: Does the Foreign Sovereign Immunities Act permit recovery of punitive damages from foreign states for terrorist acts occurring prior to the passage of the current version of the statute in 2008?

Court's Holding: Yes. The plain text of the 2008 amendments permits plaintiffs proceeding under § 1605A(c)’s federal cause of action to seek and win punitive damages for past conduct.

“Even if we assume . . . that Sudan may claim the benefit of Landgraf’s presumption of prospectivity, Congress was as clear as it could have been when it authorized plaintiffs to seek and win punitive damages for past conduct using § 1605A(c)’s new federal cause of action.

Justice Gorsuch, writing for the Court

Gibson Dunn represented the winning parties: Monicah Okoba Opati, et al.

What It Means:
  • Under Landgraf v. USI Film Products, 511 U.S. 244 (1994), courts generally presume that legislation operates only prospectively unless Congress clearly states that the law applies retroactively. In Republic of Austria v. Altmann, 541 U.S. 677 (2004), the Supreme Court limited the reach of that presumption in litigation against foreign states under the FSIA, holding that the presumption did not apply to the original FSIA’s codification of “restrictive” sovereign immunity. But today, the Court held that the 2008 FSIA amendments authorize punitive damages for past conduct with sufficient clarity to satisfy the presumption even assuming it applied.
  • The Court rejected Sudan’s suggestion that special constitutional concerns raised by retroactive punitive damages support a “super-clear statement” requirement beyond the normal presumption against retroactivity. The Court explained that when litigants believe the retroactive application of a statute raises constitutional questions, “the better course is . . . to challenge the law’s constitutionality, not ask a court to ignore the law’s manifest direction.”
  • The Court remanded for the lower courts to address, in the first instance, the availability of retroactive punitive damages under state-law causes of action against foreign sovereigns. This question remains important for non-American plaintiffs, who are ineligible for the federal cause of action under the current terrorism exception.
  • The Court’s decision continues Gibson Dunn’s record of successfully representing victims of international terrorism before the Supreme Court. In Bank Markazi v. Peterson, 136 S. Ct. 1310 (2016), Gibson Dunn successfully represented victims of terrorism against a claim by the Central Bank of Iran challenging the constitutionality of a provision of the Iran Threat Reduction and Syria Human Rights Act of 2012, 22 U.S.C. § 8772, that had made available for postjudgment execution nearly $2 billion in assets held in New York for Iran’s Central Bank.

The Court's opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Matthew D. McGill +1 202.887.3680 mmcgill@gibsondunn.com

Related Practice: Transnational Litigation

William E. Thomson +1 213.229.7891 wthomson@gibsondunn.com Andrea E. Neuman +1 212.351.3883 aneuman@gibsondunn.com Perlette Michèle Jura +1 213.229.7121 pjura@gibsondunn.com
© 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 14, 2020 |
Supreme Court Casts Doubt On “Defense Preclusion”

Click for PDF

In a case brought under federal trademark law, the Supreme Court held 9-0 that preclusion does not bar a defendant from raising new defenses in response to new claims. 

Background: The doctrine of claim preclusion prevents parties from raising an issue that could have been raised in a prior action between the parties. Claim preclusion typically applies to offensive accusations, and applies only when the later action advances the same claim as the earlier action. This case concerned whether claim preclusion can bar a defense not raised in a prior action.

In 2001, Marcel Fashions Group (“Marcel”) sued Lucky Brand Dungarees Inc. (“Lucky Brand”) for infringement of Marcel’s “Get Lucky” trademark. In a settlement agreement, Lucky Brand agreed not to use the phrase “Get Lucky,” and Marcel released any claims regarding Lucky Brand’s use of its own marks. In 2005, Lucky Brand sued Marcel for violating its trademarks, and Marcel counterclaimed that Lucky Brand had continued to use the phrase “Get Lucky.” The district court permanently enjoined Lucky Brand from imitating the “Get Lucky” mark. In 2011, Marcel sued Lucky Brand, alleging that Lucky Brand’s use of its own marks containing the word “Lucky” infringed the “Get Lucky” mark in violation of the permanent injunction. Lucky Brand moved to dismiss on the ground that Marcel had released its claims in the settlement agreement. The district court granted the motion, but the Second Circuit vacated, holding that “defense preclusion” barred the release defense because it could have been litigated in the 2005 action but was not.

Issue: When, if ever, does claim preclusion apply to a defense raised in a successor suit?

Court's Holding: Claim preclusion does not bar a new defense when the later suit raises different claims than the earlier suit.

“Any … preclusion of defenses must, at a minimum, satisfy the strictures of issue preclusion or claim preclusion.

Justice Sotomayor, writing for the unanimous Court

What It Means:
  • The Court determined that Marcel’s 2011 claim was different than its 2005 claim—in 2005 Marcel alleged infringement by use of the “Get Lucky” phrase, whereas in 2011 Marcel alleged infringement by use of Lucky Brand’s own marks. Because identity of claims is a necessary predicate to any application of claim preclusion, that determination resolved the dispute.
  • The Court thus left unresolved whether claim preclusion sometimes bars a new defense. However, the Court stated in dicta that “[t]here may be good reasons to question any application of claim preclusion to defenses,” noting that a defense may go unraised for various reasons unrelated to the merits. There likely will be continued litigation over this issue.
  • The Court emphasized that the identity-of-claims requirement is particularly important for trademark disputes, which “often turn[] on extrinsic facts that change over time.” This acknowledgment is consistent with the Court’s recent trend against establishing bright-line rules in trademark law, as seen in the Court’s recent decision in Romag Fasteners, Inc. v. Fossil, Inc.

The Court's opinion is available here.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders:

Appellate and Constitutional Law Practice

Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Howard S. Hogan +1 202.887.3640 hhogan@gibsondunn.com
© 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 12, 2020 |
New York Appellate Division, First Department Lifts March 2020 Suspension Order, Reinstating Key Appellate Deadlines and Effectively Reopening the Court for New Appeals

Click for PDF New York State’s Appellate Division, First Department handles over 3,000 appeals each year—more than the number of appeals pending in eight of the federal appellate courts in 2019.  Its docket includes some of the most high-profile and significant commercial appeals in the State and the nation, as it reviews trial-level decisions issued by the Manhattan branch of the New York Supreme Court, Commercial Division.[1]  The Appellate Division is often the final word in a given case; the only courts that can review its decisions—the New York Court of Appeals (New York’s high court) and the U.S. Supreme Court—control their own dockets and take relatively few cases for consideration. On March 17, 2020, the First Department issued an order “suspend[ing] indefinitely and until further directive of the Court,” all perfection, filing, and other deadlines, except for matters that were already perfected for the May 2020 and June 2020 Terms of the First Department.[2]  The order essentially closed the Court to new appeals and left the First Department’s Fall calendar in COVID-19-related limbo.  But on May 8, 2020 the First Department rescinded the March 17, 2020 Order and reinstated “the deadlines for the remaining 2020 terms of the Court (September through December 2020 terms).”[3]  The First Department is in all material respects now back open for business for new appeals. The details of the May 8 Order are important for any party considering taking an appeal to the First Department.  And virtually any trial court-level decision or order, even if interlocutory, can be appealed to the Appellate Division under New York’s unusually broad appealability rules.  But failure to comply with the Court’s deadlines in some instances can result in a dismissal of the appeal.[4] First Department Filing Deadlines.  Filing deadlines for appeals in the First Department are driven by the First Department’s Term calendar and rules for “perfecting” appeals.  In general, an appeal is deemed “perfected” when the appellant’s brief, the record on appeal or the appendix, and the notice of argument are collectively filed with the First Department and served on the respondent.[5]  The First Department’s rules provide that, except where the Court has directed that appeal be perfected by a particular time, an appeal must be perfected within six months from the date of the notice of appeal.[6]  If an appellant fails to perfect the appeal within six months, or the deadline set forth in an applicable Court order, “the matter shall be deemed dismissed without further order.”[7]  However, the appellant can decide when to perfect the appeal within the allotted six-month period. The appellant must also perfect the appeal for a specific “Term” of the Court.  The First Department has monthly Terms from January through June and September through December, in advance of which the Court accepts submissions at set deadlines.[8]  Each Term in the calendar has a designated due date for the appellant to perfect the appeal, the respondent to serve and file the responding brief, and the appellant to serve and file the reply brief.[9]  The “Term” of the Court for which an appeal is perfected determines the month in which the Court will hear oral argument in the case.  Although appellants may perfect an appeal any day in which the Court is open, appellants frequently opt to perfect on the last filing day of a given Term, as this gives the appellant the maximum amount of time to work on opening papers while still being heard in the given Term, and doing so also gives respondent the fewest number of days to review the opening brief and file their responding brief. The March 17 & May 8 Orders and Perfection Deadlines.  The First Department’s March 17, 2020 Order “suspended indefinitely” all perfection, filing, and other appeal deadlines “until further directive of the Court,” except for matters that were already perfected for the May 2020 and June 2020 Terms of the First Department, the perfection deadlines for which had already passed as of March 17.[10]  That means that appellants considering filing any new appeals had no due dates to do so—effectively putting the First Department on a pandemic-induced pause.[11] Now, by reinstating the “deadlines for the remaining 2020 terms,” the May 8 Order effectively reopens the Court for new appeals.  Specifically, the perfection and filing deadlines for the upcoming September through December 2020 Terms, as set forth in the First Department’s calendar issued prior to the outbreak of COVID-19, are reinstated and will remain in effect.[12]  Namely, if an appealing party wants its case to be heard in the September Term (the next available Term), it needs to perfect by July 13, 2020; if it wants to be heard in the October Term, it needs to perfect by August 10, 2020.[13]  And importantly, the March 17 Order did not alter the pre-pandemic deadlines—essentially allowing the Court to return to its regular Fall schedule. While the First Department has reinstated its calendar for the remainder of the year, the requirement that parties file hard copy briefs, records, and appendices with the Court “continues to be suspended until further directive of this Court.”[14] Finally, due to the pandemic, oral argument for the May and June Terms was conducted via videoconference technology.  The Court has not yet provided information on the format for oral argument for the September through December 2020 Terms.  We anticipate that the Court will issue further orders in the coming months providing that information to litigants. Gibson Dunn is monitoring the situation with respect to the First Department and is available to assist with any questions. ____________________ [1]  Appellate Division, First Judicial Department, Supreme Court of the State of New York, http://www.courts.state.ny.us/courts/ad1/ (last visited May 12, 2020); see also Table B—U.S. Courts of Appeals Federal Judicial Caseload Statistics (March 31, 2019), Admin. Office of the U.S. Courts, https://www.uscourts.gov/statistics/table/b/federal-judicial-caseload-statistics/2019/03/31 (last visited May 12, 2020). [2]  Order In the Matter of the Temporary Suspension of Perfection, Filing and other Deadlines During Public Health Emergency, N.Y. App. Div. 1st Dep’t (Mar. 17, 2020), http://www.courts.state.ny.us/courts/ad1/PDFs/Temporary%20Suspension%20Order.pdf [hereinafter March 17 Order]. [3]  Order In the Matter of the Rescission of Temporary Suspension Order, N.Y. App. Div. 1st Dep’t (May 8, 2020), https://www.nycourts.gov/courts/AD1/PDFs/RescissionOrder.pdf [hereinafter May 8 Order]. [4]  22 N.Y.C.R.R. 1250.10(a).  The May 8 Order also sets a new deadline for filing responding and reply papers to motions that were returnable between March 16, 2020 and May 4, 2020, as discussed in more detail below. [5]  22 N.Y.C.R.R. 1250.9(a). [6]  22 N.Y.C.R.R. 1250.9(a), 1250.10(a). [7]  22 N.Y.C.R.R. 1250.10(a). [8]  2020 Calendar, New York Supreme Court, Appellate Division – First Department, https://www.nycourts.gov/courts/AD1/2020calendars.shtml (last visited May 12, 2020) [hereinafter 2020 Calendar]. [9]  Id. [10]  March 17 Order, supra note 2. [11]  Per the March 17 Order, appellants were still permitted to file opening papers initiating a new appeal, should they choose to do so, but those appeals would not be calendared and respondents’ deadlines for filing opposition papers would not be triggered. [12]  May 8 Order, supra note 3. [13]  2020 Calendar, supra note 8. [14]  May 8 Order, supra note 3.  The May 8 Order also set a new deadline for the filing of responding and reply papers on motions that were returnable between March 16, 2020 and May 4, 2020.  Motions in the appellate division include anything from motions to stay trial court proceedings pending appeal and motions for preferences (i.e., an expedited appeal).  Generally, a motion is “returnable” on the date that the motion will be heard by the Court.  The moving party may choose the specific return date, but motions should generally be made returnable at 10:00 a.m. on any Monday in which the Court is open.  22 N.Y.C.R.R. 1250.4(a)(1); CPLR 2214(b).  The deadlines for responding papers and reply papers, if any, are determined based on the return date.  22 N.Y.C.R.R. 1250.4(a)(4), (5); CPLR 2214(b).  The March 17 Order suspended all filing deadlines indefinitely, including the deadlines to file responding papers and reply papers to motions.  The May 8 Order reinstates applicable filing deadlines, and states that for motions that were made returnable between March 16, 2020 and May 4, 2020, the responding and reply papers must be filed by May 22, 2020.


Gibson Dunn’s lawyers are available to assist with any questions you may have regarding developments related to the COVID-19 outbreak. For additional information, please contact the Gibson Dunn lawyer with whom you usually work, any member of the firm’s Coronavirus (COVID-19) Response Team, or the following authors:

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May 7, 2020 |
Supreme Court Holds That Copyright Protection Does Not Extend To Annotations Accompanying Statutory Text

Click for PDF On April 27, 2020, a divided Supreme Court held in Georgia v. Public.Resource.Org, Inc. that Copyright protection does not extend to the annotations contained in Georgia’s official annotated code. 590 U.S. ___, No. 18-1150, 2020 WL 1978707, at *3 (U.S. Apr. 27, 2020). The “government edicts” doctrine, the Court held, puts Georgia’s annotations outside the reach of copyright protection because they are created by an arm of the Georgia legislature acting in the course of its legislative duties. Id. Background The Official Code of Georgia Annotated (“OCGA”) includes the text of every Georgia statute currently in force. Public.Resource.Org, 2020 WL 1978707, at *3. At issue in this case is a set of annotations that appear beneath each statutory provision, which includes summaries of judicial decisions applying a given provision, pertinent opinions of the state attorney general, a list of related law review articles and similar reference materials, and information about the origins of the statutory text. Id. A state entity established by the Georgia Legislature, called the Code Revision Commission, assembles the OCGA. Id. Pursuant to a work-for-hire agreement with the Commission, Matthew Bender & Co., Inc., a division of the LexisNexis Group, prepared the annotations in the current OCGA in the first instance. Id. at *4. Public.Resource.Org is a nonprofit organization that aims to facilitate public access to government records and legal materials. Id. Without permission, Public.Resource.Org posted a digital version of the OCGA on various websites and distributed copies of the OCGA to a number of organizations and Georgia officials. Id. The Commission sued Public.Resource.Org on behalf of the Georgia Legislature and the State of Georgia for infringement of its copyright in the annotations. Id. Georgia did not contend that its state laws were subject to copyright protection. Public.Resource.Org counterclaimed, seeking a declaratory judgment that the entire OCGA, including the annotations, fell in the public domain. Id. The District Court sided with the Commission but the Eleventh Circuit reversed. In a 5-4 decision, with two dissenting opinions, the Supreme Court affirmed the Eleventh Circuit, albeit for reasons distinct from those relied on by the Court of Appeals. The Supreme Court held that the annotations in Georgia’s Official Code are ineligible for copyright protection. The Government Edicts Doctrine This case is the Supreme Court’s most detailed discussion of the so-called “government edicts” doctrine in more than a century. The government edicts doctrine is a judicially created exception to copyright protection that originated in a trio of cases decided in the 19th century: Wheaton v. Peters, 33 U.S. 591 (1834); Banks v. Manchester, 128 U.S. 244 (1888); and Callaghan v. Myers, 128 U.S. 617 (1888). These cases, addressing works reporting court decisions, held that there can be no copyright in the opinions of the judges or in “whatever work they perform in their capacity as judges,” Banks, 128 U.S. at 253, but that the reporter had a copyright interest in the explanatory materials that the reporter had created himself, Callaghan, 128 U.S. at 647. Georgia urged the Court to read these precedents as limiting the government edicts doctrine to government edicts “having the force of law,” such as state statutes, but not to works lacking the force of law, such as the annotations in the Official Code of Georgia Annotated. See, e.g., Brief for Petitioner at (I), Georgia v. Public.Resource.Org, Inc., 590 U.S. ___ (2020) (No. 18-1150), 2019 WL 4075096, at *I. Public.Resource.Org offered an alternative approach, arguing that the Court’s precedents do not limit the government edicts doctrine to works that have binding legal effect; rather, the legal materials prepared by state court judges were not copyrightable—not because they had the force of law, but because they lacked an “author” for copyright purposes. Brief of Respondent at 27, Georgia v. Public.Resource.Org, Inc., 590 U.S. ___ (2020) (No. 18‑1150), 2019 WL 5188978, at *27. The Court opted for Public.Resource.Org’s “authorship” approach. According to Chief Justice Roberts, writing for the majority, the Court’s “government edicts precedents reveal a straightforward rule based on the identity of the author.” Public.Resource.Org, 2020 WL 1978707, at *5. “Because judges are vested with the authority to make and interpret the law, they cannot be the ‘author’ of the works they prepare ‘in the discharge of their judicial duties.’” Id. at *6 (citing Banks, 128 U.S. at 253). Similarly, legislators cannot be “authors” of the works they prepare in their capacity as legislators. Id. This rule, however, does not apply to “works created by government officials (or private parties) who lack the authority to make or interpret the law, such as court reporters.” Id. (citing Banks, 128 U.S. at 253; Callaghan, 128 U.S. at 647). This rule based on the identity of the author, the Court explained, “applies regardless of whether a given material carries the force of law,” id. at *5 (emphasis added): “appl[ying] both to binding works (such as opinions) and to non-binding works (such as headnotes and syllabi),” id. at *6. Thus, the Court concluded, “copyright does not vest in works that are (1) created by judges and legislators (2) in the course of their judicial and legislative duties.” Id. at *6. Justice Thomas, in dissent, joined by Justice Alito and by Justice Breyer, would have followed Georgia’s “force of law” approach. The trio of cases, Justice Thomas wrote, establishes that “statutes and regulations cannot be copyrighted, but accompanying notes lacking legal force can be.” Id. at *13. Georgia’s Annotations Are Not Subject To Copyright Protection For its purposes, the Court identified the technical “author” of the annotations as Georgia’s Code Revision Commission. The Commission was the technical author even though the work was prepared in the first instance by a private company (Lexis) because Lexis did the work pursuant to a work-for-hire agreement providing that the Commission would be the sole “author” of the annotations. Public.Resource.Org, 2020 WL 1978707, at *7. The parties did not dispute this point. Id.; see also id. at *15 n.3 (Thomas, J., dissenting). Then, applying its two-part “authorship” framework, the Court held that Georgia’s annotations are not subject to copyright protection because (1) the technical author of the annotations, Georgia’s Code Revision Commission, qualifies as a legislator for the purposes of the analysis because it functions as an arm of the Georgia Legislature; and (2) the annotations were created in the discharge of the Legislature’s legislative duties. Id. at *7. 1.   The Court first determined that, for the purpose of preparing and publishing the annotations, the Commission functions as an arm of the Georgia Legislature. Id. Citing a number of factors, the Court concluded that the Commission is an arm of the legislature because:

  • The Commission is created by the legislature, for the legislature;
  • The Commission consists largely of legislators;
  • The Commission receives funding and staff designated by law for the legislative branch; and
  • “Significantly,” the legislature approves the Commission’s annotations before they are “merged” with the statutory text and published in the official code alongside that text at the legislature’s direction. Id.
Justice Thomas maintained that this “test for ascertaining the true nature of these commissions raises far more questions than it answers.” Id. at *13. Although the majority lists a number of factors, Thomas noted, “it does not specify whether these factors are exhaustive or illustrative” nor does it “specify whether some factors weigh more heavily than others when deciding whether to deem an oversight body a legislative adjunct.” Id. Interestingly, although sovereign immunity is not mentioned anywhere in the Justices’ opinions, the majority’s test for determining whether the Commission functions as an arm of the Georgia Legislature resembles the fact-intensive, multifactor inquiry the Court performs when deciding whether a state instrumentality may invoke the State’s immunity under the Eleventh Amendment. See, e.g., Hess v. Port Authority Trans–Hudson Corporation, 513 U.S. 30, 47–51 (1994); Lake Country Estates, Inc. v. Tahoe Regional Planning Agency, 440 U.S. 391, 401–02 (1979). In the arm-of-the-state context, the Court examines the relationship between the state and the entity in question and may look to the “nature of the entity created by state law” to determine whether it should “be treated as an arm of the State.” Regents of the Univ. of California v. Doe, 519 U.S. 425, 429–30 (1997) (citing Mt. Healthy City Bd. of Ed. v. Doyle, 429 U.S. 274, 280 (1977)); see also Port Auth. Trans-Hudson Corp. v. Feeney, 495 U.S. 299, 311–12 (1990) (Brennan, J., concurring) (“immunity applies . . . where the entity being sued is so intricately intertwined with the State that it can best be understood as an ‘arm of the State’”). For example, in Auer v. Robbins, the Court considered whether the state (1) was responsible for the appointment of the board’s members, (2) was responsible for the board’s financial liabilities, or (3) directed or controlled the board in any other respect. 519 U.S. 452, 456 n.1 (1997). 2.   The Court next concluded that the Commission created the annotations in the discharge of its legislative duties. Public.Resource.Org, 2020 WL 1978707, at *7. Although the legislature does not enact the annotations into law through bicameralism and presentment, the annotations provide commentary and resources that the legislature has deemed relevant to understanding its laws and fall within the work legislators perform in their capacity as legislators. Id. Justice Ginsburg, with whom Justice Breyer also joined, disagreed. Justice Ginsburg would have held the annotations copyrightable because, in her view, the Commission did not create them in its legislative capacity for three reasons. Id. at *19. First, because the annotations comment on statutes already enacted, annotating begins only after lawmaking ends. Id. Second, the annotations do not state the legislature’s perception of what a law conveys; rather, they summarize the views of others on a given statute. Id. at *20. Third, the annotations serve as a reference to the public, not the legislature—they do not aid the legislature, for example, in determining whether to amend existing law. Id. The Broader Implications Of The Majority And Dissenting Opinions Given the infrequency with which the government edicts doctrine appears in copyright litigation, the Court’s decision may be most remarkable for the unusual lineups that it produced in the majority and dissenting opinions. Analyzing the reasons for those divisions may reveal clues about the individual Justices’ judicial philosophies. In writing for the Court, Chief Justice Roberts expressed concern with creating the appearance of “first-class” and “economy-class” access to public laws, which could reflect his institutional responsibilities as Chief Justice of the United States (which include presiding over the Judicial Conference and chairing the Board of the Federal Judicial Center). The Chief Justice observed that the “animating principle” behind the common-law limit on copyright protection “is that no one can own the law.” Public.Resource.Org, 2020 WL 1978707, at *6. “Every citizen,” the Chief Justice continued, “is presumed to know the law, and it needs no argument to show that all should have free access to its contents.” Id. (citing Nash v. Lathrop, 142 Mass. 29, 35 (1886)) (internal quotation marks and alterations omitted). The Chief Justice asked readers to “[i]magine a Georgia citizen interested in learning his legal rights and duties.” Id. at *10. If he or she were limited to the “economy-class version of the Georgia Code,” he or she would have no idea that the Georgia Supreme Court has held important aspects of certain laws unconstitutional. Id. By comparison, the Chief Justice noted that “first-class readers with access to the annotations will be assured that these laws are, in crucial respects, unenforceable relics.”   Id.   He added that the decision follows a “clear path forward that avoids these concerns.” Id. at *11. In contrast, Justice Thomas, joined by Justice Alito, expressed a discomfort with judicial policymaking and “meddling.” Id. at *18. For Justice Thomas, “[a]n unwillingness to examine the root of a precedent has led to the sprouting of many noxious weeds that distort the meaning of the Constitution and statutes alike.” Id. at *14. Only after disputing the majority’s extension of the Court’s 19th century precedents did Justice Thomas address the “text of the Copyright Act,” concluding that it “supports” the dissenters’ reading of the precedents. The bright-line nature of the majority’s “straightforward” authorship rule may help to explain why Justices Gorsuch and Kavanaugh joined with Chief Justice Roberts in this holding. As the dissent warned, however, that the rule could be challenging to apply in practice. To determine whether a state body is part of a legislature and discharging its official duties, courts must survey state law to identify factors that either point toward or away such a conclusion. See id. at *7–8. As Justice Thomas noted in his dissent, the courts apparently have discretion to decide what factors are relevant. Id. at *13. The result may be a patchwork of copyright protection for states’ annotated codes, depending on the particulars of each state’s statutory scheme. Conclusion As result of the Court’s decision, state legislatures and publishers trying to enforce copyrights in legal annotations may face increasing scrutiny based on whether their publications were issued by a legislative body discharging an official function. As a result, we may see more state legislatures taking action to restructure the way they create their code annotations and rethink whom they enlist to create them. For example, more publishers may compile annotations independently of the legislature (as some states already do). This, as Justice Thomas predicts, could result in an increase in the cost of annotations and further exacerbate the divide between “first-class” and “economy-class” access to public laws that Chief Justice Roberts worked to avoid. Finally, if Congress is dissatisfied with the government edicts doctrine, Congress may respond to the Court’s invitation to change the meaning of “author.” Of course, predicting whether and on what schedule Congress may act is always difficult, and particularly so under current circumstances. More broadly, the Court’s decision hints at philosophical disputes over the role of precedent and judicial policymaking, statutory construction, and even immunity and governmental function analysis. It will be interesting to see how the Justices use this decision in future cases implicating those issues.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court. Please feel free to contact the Gibson Dunn lawyer with whom you usually work, or the following authors: Jessica A. Hudak - Orange County, CA (+1 949.451.3837, jhudak@gibsondunn.com) Lucas C. Townsend - Washington, D.C. (+1 202.887.3731, ltownsend@gibsondunn.com) Howard S. Hogan - Washington, D.C. (+1 202.887.3640,hhogan@gibsondunn.com) Please also feel free to contact the following practice leaders: Appellate and Constitutional Law Group: Allyson N. Ho - Dallas (+1 214.698.3233, aho@gibsondunn.com) Mark A. Perry - Washington, D.C. (+1 202.887.3667, mperry@gibsondunn.com) Intellectual Property Group: Wayne Barsky - Los Angeles (+1 310.552.8500, wbarsky@gibsondunn.com) Josh Krevitt - New York (+1 212.351.4000, jkrevitt@gibsondunn.com) Mark Reiter - Dallas (+1 214.698.3100,mreiter@gibsondunn.com) © 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 6, 2020 |
Federal Circuit Update (May 2020)

Click for PDF This edition of Gibson Dunn’s Federal Circuit Update summarizes the three Supreme Court decisions in cases originating in the Federal Circuit decided in April and key filings for certiorari review. We address the court’s proposed amendment to the Federal Circuit Rules of Practice, announced last month, and observed changes in its Rule 36 disposition practice during the pandemic.  And we discuss the Federal Circuit’s denial of the petitions for rehearing of Arthrex, Inc. v. Smith & Nephew, Inc., No. 18-2140, and other recent Federal Circuit decisions concerning assignor estoppel, § 101 in Rule 50 motions, prevailing parties, and the Patent Office’s § 101 Official Guidance.

Federal Circuit News

Supreme Court: In April, the Supreme Court decided three cases originating in the Federal Circuit: Thryv, Inc., fka Dex Media, Inc. v. Click-To-Call Techs., LP, No. 18-916: As we summarized in our alert, on April 20, 2020, the Supreme Court held 7-2 that the Patent Trial and Appeal Board’s decision whether a petition for inter partes review is time-barred is not judicially reviewable. On April 27, 2020, the Court also granted the petitions for writs of certiorari in Superior Communications, Inc. v. Voltstar Technologies, Inc., No. 18-1027, and Atlanta Gas Light Company v. Bennett Regulator Guards, Inc., No. 18-999. The Court vacated the judgments and remanded the cases for further consideration in light of Thryv. Romag Fasteners Inc. v. Fossil Inc., No. 18-1233: On April 23, 2020, the Supreme Court unanimously held that under the Lanham Act, proof of willful trademark infringement is not a precondition to a mark holder’s recovery of the infringer’s profits. Read more in our alert. Maine Community Health Options v. United States, No. 18-1028: As we summarized in our alert, on April 27, 2020, the Supreme Court held 8-1 that Congress failed to effectively repeal the government’s obligation to make more than $12 billion in payments to insurers under the Patient Protection and Affordable Care Act risk corridors program, and insurers may sue to recover the missed payments. Currently, the only Federal Circuit case still pending at the Court is Google LLC v. Oracle America, Inc., No. 18-956. On April 13, 2020, the Court rescheduled argument for the October Term 2020; and on May 4, 2020, the Court ordered supplemental briefing on one of the two questions presented. Gibson Dunn partners Mark Perry and Blaine Evanson serve as counsel for Amicus Curiae Rimini Street, Inc. supporting reversal. Noteworthy Petitions for a Writ of Certiorari: The Supreme Court is currently considering certiorari in a number of potentially impactful cases. Emerson Electric Co. v. SIPCO, LLC, No. 19-966: “Whether 35 U.S.C. 324(e) permits review on appeal of the Director’s threshold determination, as part of the decision to institute [Covered Business Method] review, that the challenged patent qualifies as a CBM patent.” On March 19, 2020, the Supreme Court invited a response from SIPCO. Comcast Corp. v. International Trade Commission, No. 19-1173: (1) “Whether the Federal Circuit’s judgment should be vacated as moot and remanded with instructions to vacate the Commission’s orders, pursuant to United States v. Munsingwear, Inc., 340 U.S. 36 (1950)”; (2) “If the case is not moot, whether the Commission exceeded its authority under 19 U.S.C. § 1337(a)(1)(B), by holding that the set-top boxes are ‘articles that * * * infringe.’”; (3) “If the case is not moot, whether the Commission exceeded its authority under 19 U.S.C. § 1337(a)(1)(B) by finding that Comcast engaged in ‘importation’ of the allegedly infringing articles.”   Willowood, LLC v. Syngenta Crop Protection, LLC, No. 19-1147: (1) “Whether liability for patent infringement under 35 U.S.C. § 271(g) requires that all steps of a patented process must be practiced by, or at least attributable to, a single entity, a requirement that this Court previously recognized is a prerequisite for infringement under 35 U.S.C. § 271(a) and (b) in Limelight Networks, Inc. v. Akamai Technologies, Inc., 572 U.S. 915 (2014)”; (2) “Whether, by requiring EPA to grant expedited review and approval of labels for generic pesticides that are ‘identical or substantially similar’ to the previously approved labels for the same product, Congress intended to preclude claims of copyright infringement with respect to generic pesticide labels.” Chrimar Systems, Inc. v. Ale USA Inc., No. 19-1124: “Whether the Federal Circuit may apply a finality standard for patent cases that conflicts with the standard applied by this Court and all other circuit courts in nonpatent cases”; (2) “Whether a final judgment of liability and damages that has been affirmed on appeal may be reversed based on the decision of an administrative agency, merely because an appeal having nothing to do with liability, damages or the proper calculation of the ongoing royalty rate is pending.” Celgene Corp. v. Peter, No. 19-1074: “Whether retroactive application of inter partes review to patents issued before passage of the America Invents Act violates the Takings Clause of the Fifth Amendment.” The petitions pending in Collabo Innovations, Inc. v. Sony Corp., No. 19-601, and Arthrex, Inc. v. Smith & Nephew, Inc. (not that Arthrex), No. 19-1204, present variations on the theme. Gibson Dunn is co-counsel for Smith & Nephew. Noteworthy Federal Circuit En Banc Petitions: This month we highlight the Federal Circuit’s denial of rehearing en banc in Arthrex, Inc. v. Smith & Nephew, Inc., No. 18-2140. As we summarized in our November 2019 update and in our November 5, 2019 alert, a panel of the Federal Circuit (Moore, J., joined by Reyna and Chen, JJ.) held that Patent Trial & Appeal Board (PTAB) Administrative Patent Judges (APJs) were improperly appointed principal Officers under the Appointments Clause. To remedy this defect, the Court ruled that the statutory provision of for-cause removal for PTO officials is unconstitutional as applied to APJs, and vacated and remanded the PTAB’s Final Written Decision. The Court further held that, on remand, a new panel of APJs must be designated and a new hearing must be granted. The government and both parties to the underlying IPR petitioned for en banc review. Gibson Dunn partner Mark Perry served as co-counsel for Smith & Nephew. On March 23, the Court voted 8-4 to deny rehearing en banc, with a concurring opinion from Judge Moore (the author of the panel opinion) and three different dissenting opinions. Judge Dyk’s dissent argued that the panel’s “draconian” remedy was inconsistent with Congressional intent, that the panel’s remedy does not require invalidation of pre-Athrex PTAB decisions, and that the panel’s holding that APJs are principal officers is “open to question.” Judges Newman and Wallach joined Judge Dyk’s dissent in full, and Judge Hughes joined the part relating to the panel’s remedy being inconsistent with Congressional intent. Judge Hughes’s dissent argued that APJs are inferior Officers and that severing removal protections is inconsistent with Congressional intent. Judge Wallach joined Judge Hughes’s dissent in full. Judge Wallach’s dissent further argued that APJs are inferior Officers. The private parties in Arthrex and in several related cases have indicated their intent to petition the Supreme Court to review both aspects of the Federal Circuit’s decision—i.e., the distinction between principal and inferior Officers, and the appropriate remedy for any Appointments Clause violation. The Solicitor General is also considering whether to seek review on behalf of the United States, which intervened in these cases. On May 1, 2020, the PTAB Chief Judge issued a general order directed to the more than 100 PTAB cases where the final written decisions were vacated and remanded in view of Arthrex. The PTAB ordered all such cases be held “in administrative abeyance until the Supreme Court acts on a petition for certiorari or the time for filing such petitions expires.” Other Federal Circuit News: The COVID-19 pandemic has caused a number of scheduling and other changes at the Federal Circuit.  For instance, the Federal Circuit submitted a number of cases on the briefs rather than holding oral argument for both the April and May court weeks, and held oral arguments over the phone in cases that received oral argument. This marked a significant change from the court’s normal practice, which typically involves oral argument for most patent appeals in which parties are represented by counsel. The court’s change to resolving more cases on the briefs also has impacted the use of Rule 36 affirmances, which has drawn attention in recent years from some court watchers. The court’s informal policy regarding Rule 36 has been to use it only in cases that receive oral argument—nearly all cases submitted on the briefs receive a written opinion. Because the court submitted more cases on the briefs in April, the court’s use of Rule 36 affirmances dropped. The court issued only five Rule 36 affirmances for cases calendared in April, and all five cases had received oral argument (one other Rule 36 affirmance issued in April came from an earlier month and was issued concurrently with an opinion in a related case). By way of comparison, the court’s opinion page shows that the court issued 30 Rule 36 affirmances in March, 15 in February, and 19 in January. As the court continues to submit more cases on the briefs in May due to COVID-19, it will be interesting to see whether the court’s use of Rule 36 continues to decrease and how that affects the court’s practice of issuing opinions in the future. The court continues to schedule telephonic arguments through June.  Aside from not being able to see the judges or counsel, a number of attorneys who engaged in those remote arguments have stated that the court completed the process without any major technical difficulties. The clerk’s office held an orientation for those conducting arguments in advance of their scheduled date.  And the Federal Circuit Bar Association is hosting a webcast, led by Gibson Dunn partner Lucas Townsend, on May 14, 2020, addressing “Perspectives on the Federal Circuit’s Modified Procedures During the COVID-19 Crisis.” As of Monday, March 23, 2020, the clerk’s office reduced its availability to provide assistance by phone. It is available by email at either casequestions@cafc.uscourts.gov (for questions about pending cases) or publicinformation@cafc.uscourts.gov (for all other questions). The annual Federal Circuit Judicial Conference, scheduled for May 15, 2020, has been cancelled.  The annual Federal Circuit Bench and Bar Conference, scheduled to occur this summer in Puerto Rico, has been changed to a virtual format that is tentatively scheduled to occur on June 17 or 18, 2020.

Federal Circuit Practice Update

On April 24, 2020, the Federal Circuit gave notice that it proposes to amend several Federal Circuit Rules of Practice and the Federal Circuit Attorney Discipline Rules. If adopted, the amendments would take effect on July 1, 2020. The deadline to submit Public comments—either by email to FederalCircuitRules@cafc.uscourts.gov or by mail—is May 27, 2020. The proposed amendments are extensive, covering 47 amended or new rules. Many of the changes are stylistic, designed to minimize the differences between the Federal Circuit Rules and the Federal Rules of Appellate Procedures. These stylistic changes include, for example, changes to the format of enumerated lists, when numbers are spelled out, and how parties should refer to the opening brief (i.e., the “principal” brief). One of the most substantive changes is the proposed addition of new Federal Circuit Rule 25.1, which, if adopted, would consolidate all privacy and confidentiality rules into a single rule. The rule would govern both logistical information (including who can view the confidential information and procedures for making it public), as well as substantive information (such as the definition of personally identifiable information and the status of protective orders on appeal). The new rule continues to restrict the parties to only marking up to 15 unique words or numbers as confidential in any one brief, petition, motion, response, or reply. The 15-word limit rule would not apply to appendices, exhibits, or similar attachments. The new rule would also govern the format of confidential filings. For example, the court has proposed requiring parties to provide an “adequate, general descriptor of the material . . . over the deletion or redaction” in filings that contain redacted information. Based on the language of the rule, it seems likely that this new requirement would apply to appendices as well as briefs and other filings, but some commentators have stated that this question remains unanswered. There are other notable proposed changes. Federal Circuit Rule 21 would be amended to add a provision governing the treatment of amicus briefs filed in support of writ petitions, requiring that they be filed, along with a motion for leave to file, no later than four days after the petition is docketed. Rule 25 would be amended to no longer require the filing of courtesy paper copies of documents except in specifically enumerated circumstances. That rule would also be amended to prohibit serving confidential information through the court’s electronic filing system; instead, the party would be required to serve the confidential information via paper, absent agreement by the parties. Rule 28 would be amended to change the required contents of the opening brief, including modification to the jurisdictional statement and the contents of the addendum. Amended Rule 28 also requires parties filing briefs in related cases to “advise the court at the beginning of the brief section” if the briefs contain the duplicative content. The amendments to the Rule 28.1 practice notes concerning cross-appeals seek to limit argument on the appeal issues in the third and fourth briefs to the length permitted if there were no cross-appeal. Finally, Rule 34 would be amended to limit the number of counsel who may argue on behalf of each side and on behalf of each party. Many of the other proposed amendments are ministerial and would not substantively impact an appeal to the Federal Circuit. The full notice and a summary of proposed amendments, a redlined copy of the proposed amendments, and a clean copy of the proposed amendments are available for public review on the court’s website.

Key Case Summaries (February 2020–April 2020)

Hologic, Inc. v. Minerva Surgical, Inc., Nos. 19-2054, 19-2081 (Fed. Cir. Apr. 22, 2020): Assignor estoppel bars an assignor from later challenging the validity of the assigned patent in district court, but not in an inter partes review (IPR). The two asserted patents relate to procedures and devices in endometrial ablation. Inventor, Mr. Truckai, assigned his interest in the patents to Hologic. Mr. Truckai left NovaCept (now Hologic) and founded Minerva, the accused infringer in the case. Hologic moved for summary judgment before the district court arguing that the doctrine of assignor estoppel, which bars an assignor from later challenging the validity of an assigned patent, barred Minerva from challenging the validity of the two patents. The district court granted the motion and entered judgment that the patents were not invalid. The district court also granted summary judgment of infringement. In parallel, Minerva filed an IPR challenging one of the asserted patents and the Board rendered a decision concluding that the patent was invalid as obvious. The Federal Circuit panel (Stoll, J., joined by Wallach and Clevenger, JJ.) affirmed-in-part, vacated-in-part, and remanded. Following Federal Circuit precedent, the panel held that the doctrine of assignor estoppel did not bar Minerva from relying on the Board’s decision that one of the patents was invalid, because the doctrine of assignor estoppel did not apply to IPRs. As a result, Hologic was not entitled to monetary or injunctive relief on that patent. As to the second patent, the panel concluded that the district court did not abuse its discretion in applying assignor estoppel. The panel agreed that Minerva was in privity with the original assignor (Mr. Truckai), and the fact that the patent issued from a continuation application Hologic filed after Mr. Truckai had left NoveCept and founded Minerva did not change the result. The panel reasoned that although Minerva was estopped from raising invalidity defenses, especially against claims resulting from a continuation application filed after the original assignor was no longer associated with the assignee, it was not estopped from successfully defending against infringement, where it could still introduce prior art as evidence to narrow the scope of the claims. Judge Stoll also filed additional views to point out the odd situation that arose in this case where an assignor who could not challenge the invalidity of a patent in district court due to assignor estoppel could circumvent this prohibition by challenging the patent in an IPR. She suggested that it was time for the court to reconsider en banc whether the application of doctrine of assignor estoppel in district court should change or whether the court needed to revisit its interpretation of the AIA to prevent these “odd circumstances” from happening. Ericsson Inc. v. TCL Communication Technology, No. 18-2003 (Fed. Cir. April 14, 2020): Failure to raise § 101 in Rule 50 motion did not waive issue where district court’s denial of summary judgment was effectively a grant of eligibility; claims directed to controlling access are abstract. At the district court, TCL moved for summary judgment that the asserted claims were ineligible under § 101. The district court denied the motion and held that the claims were not directed to an abstract idea. A jury ultimately found that TCL infringed the asserted claims. TCL did not raise any § 101 arguments in its Rule 50 motions. The Federal Circuit panel majority (Prost, C.J., joined by Chen, J.) vacated-in-part and reversed, determining that the asserted claims were ineligible under § 101. The majority reasoned that TCL did not waive the issue of eligibility because the district court’s summary judgment denial was not based on any factual issues that could have been presented at trial. Rather, the district court’s denial was based on its belief that the asserted claims were not directed to an abstract idea. Thus, the district court’s decision “effectively entered judgment of eligibility” and that was sufficient to preserve the issue for appeal. Alternatively, the majority reasoned that it could exercise its discretion to hear the issue because none of the goals underlying waiver would be served where the § 101 issue was fully briefed at the district court and on appeal. As to the substantive issue of eligibility, the majority found that the asserted claims, while “written in technical jargon,” were directed to the abstract idea of controlling access or limiting permission to resources. At step two, the majority determined that none of the alleged inventive concepts were recited in the claims. Judge Newman dissented, arguing that TCL waived the issue of eligibility and that the claims were eligible under § 101. O.F. Mossberg & Sons, Inc. v. Timney Triggers, LLC, No. 19-1134 (Fed. Cir. April 13, 2020): Prevailing party under § 285 requires a final court decision. O.F. Mossberg sued Timney for patent infringement. Timney did not answer the lawsuit, and at Timney’s request, the district court stayed the lawsuit while Timney pursued post-grant proceedings at the Patent Office. Ultimately, the Patent Office invalidated the sole asserted patent. In response, O.F. Mossberg filed a notice of voluntary dismissal under Rule 41(a)(1)(A)(i). Timney sought attorney fees but the court denied the motion finding that Timney was not a “prevailing party” under § 285. The Federal Circuit (Hughes, J., joined by Lourie and Reyna, JJ.) affirmed. The panel reasoned that while a party does not need to win on the merits to be a prevailing party, a party cannot “become a prevailing party without a final court decision.” Since O.F. Mossberg’s voluntary dismissal under Rule 41(a)(1)(A)(i) became effective upon filing, there was not a final court decision. The panel also found that the district court’s decision to allow a stay during the post-grant proceedings did not constitute a final court decision because it “did not change the legal relationship between the parties.” Dragon Intellectual Property, LLC v. DISH Network LLC, No. 19-1283 (Fed. Cir. April 21, 2020): Prevailing party under § 285 does not require a final court decision awarding “actual relief on the merits.” Dragon sued DISH Network and others for patent infringement. The lawsuits proceeded in two parallel tracks. As to DISH and Sirius XM, the district court stayed proceedings pending inter partes review. As to the other defendants, the district court proceeded with claim construction. After the district court’s claim construction ruling, all of the defendants, including DISH and Sirius XM, stipulated to noninfringement and the district court entered judgment in their favor. Shortly after, the PTAB determined that all of the asserted claims were unpatentable. DISH and Sirius XM moved for attorney’s fees in the district court under § 285. Before the district court ruled on the motion, Dragon appealed the district court’s noninfringement judgment and the PTAB’s decision. On appeal, the Federal Circuit affirmed the PTAB’s decision and dismissed the district court appeal as moot. On remand, the district court vacated the noninfringement judgment and dismissed the case as moot. The court denied the motion for attorney fees because DISH and Sirius XM were not awarded “actual relief on the merits.” The Federal Circuit (Moore, J., joined by Lourie and Stoll, JJ.) vacated and remanded. According to the panel, a party can be a prevailing party even if the case is dismissed on procedural grounds. In this case, the panel reasoned that DISH and Sirius XM “successfully rebuffed” Dragon’s patent infringement lawsuit by invalidating the asserted claims before the PTAB. Although the district court vacated the final judgment, the panel determined that in this circumstance, the difference between dismissing a case for mootness and vacating a final judgment did not warrant a different outcome. In re Christopher John Rudy, No. 19-2301, (Fed. Cir. Apr. 24, 2020): The Federal Circuit is not bound by Official Guidance from the PTO; method claims directed to selecting fish hooks based on water conditions are ineligible. The patent at issue recited claims directed to methods of selecting colored or colorless quality fishing hooks based on observed water conditions. The Board concluded under the Alice framework and its 2019 Revised Guidance that the methods were directed to an abstract idea. The Federal Circuit panel (Prost, C.J., joined by O’Malley and Taranto, JJ.) affirmed. As an initial matter, the panel held that the Office Guidance “does not carry the force of the law” and “is not binding in our patent eligibility analysis.” The panel then concluded that the claims at issue were directed to patent-ineligible subject matter. Argentum Pharmaceuticals LLC v. Novartis Pharmaceuticals Corporation, No. 18-2273, (Fed. Cir. Apr. 23, 2020): Article III jurisdiction is not satisfied when a future ANDA would be filed by appellant’s partner without evidence relating to appellant’s involvement in the ANDA process. Gibson Dunn partners Jane Love and Robert Trenchard served as counsel for Appellee Novartis. Argentum and multiple other parties joined an IPR filed by Apotex challenging the validity of a patent owned by Novartis. The Board held that the petitioners had failed to demonstrate unpatentability of the challenged claims, and the petitioners appealed. Each petitioner other than Argentum settled with Novartis, leaving Argentum as the only remaining appellant. The Federal Circuit (Moore, J., joined by Lourie and Reyna, JJ.) dismissed the appeal because Argentum lacked Article III standing. The court rejected Argentum’s argument that it had shown a concrete injury-in-fact based on a real and imminent threat of litigation because a forthcoming ANDA would be filed by Argentum’s “manufacturing and marketing partner,” so Argentum’s partner would face the threat of litigation rather than Argentum. The court concluded that Argentum had failed to provide evidence that it would bear the risk of any infringement suit and had not proffered any other evidence of its involvement in the ANDA process beyond “generic statements.” The court also rejected Argentum’s other arguments because (1) Argentum had failed to demonstrate economic harm it would face based on the generic at issue as opposed to multiple other generics Argentum was developing with its partner and Argentum’s assertions of lost profits harm was “conclusory and speculative”; and (2) future estoppel under 35 U.S.C. § 315(e) is not a sufficient basis for standing.

Upcoming Oral Argument Calendar

For a list of upcoming arguments at the Federal Circuit, please click here. In May, only about 38% of the court’s scheduled cases are set for telephonic argument, with the court set to decide its remaining cases on the briefs. This is up from April when the court heard argument in only 29% of its scheduled cases. The number of argued cases, however, is still dramatically lower than pre-pandemic numbers. For example, in November 2019, the court heard argument in 83% of its scheduled cases. Cases of Interest: The following cases scheduled for argument in May received at least one amicus brief: Uniloc 2017 LLC v. Hulu, LLC, No. 19-1686 (Arg. May 6, 2020): Whether, in inter partes review, the Board may analyze and determine whether substitute claims submitted by a patent owner in a motion to amend comply with the subject-matter eligibility requirements of § 101. Sellers v. Wilkie, No. 19-1769 (Arg. May 8, 2020) (Court of Appeals for Veterans Claims). Hardy v. US, No. 19-1793 (Arg. May 8, 2020) (United States Court of Federal Claims).
Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Blaine H. Evanson - Orange County (+1 949-451-3805, bevanson@gibsondunn.com) Jessica A. Hudak - Orange County (+1 949-451-3837, jhudak@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm's Appellate and Constitutional Law or Intellectual Property practice groups:

Appellate and Constitutional Law Group: Allyson N. Ho - Dallas (+1 214-698-3233, aho@gibsondunn.com) Mark A. Perry - Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com)

Intellectual Property Group: Wayne Barsky - Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Josh Krevitt - New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Mark Reiter - Dallas (+1 214-698-3100, mreiter@gibsondunn.com)

© 2020 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 1, 2020 |
California Supreme Court Holds No Right to Jury Trial for Unfair-Competition or False-Advertising-Law Claims

Click for PDF On April 30, 2020, the California Supreme Court issued a long-awaited opinion in Nationwide Biweekly Administration Inc. v. Superior Court, No. S250057, ___ Cal.5th ___ regarding whether civil actions brought by governmental entities on behalf of the People, seeking statutory penalties under the Unfair Competition Law, Business and Professions Code §§ 17200 et seq. (“UCL”), and False Advertising Law (“FAL”), Business and Professions Code §§ 17500 et seq., must be tried to a jury.  A unanimous Court held that there is no right to a jury trial for causes of action brought under the UCL, regardless of the relief sought.  A majority of the Court held the same as to the FAL. The discussion below provides a brief overview of the UCL and FAL, analyzes the California Supreme Court’s decision in Nationwide Biweekly, and identifies some of the unresolved questions left open by Nationwide Biweekly. I.   Overview of the UCL and FAL The UCL permits both private parties and public prosecutors to bring suits to combat “unfair competition,” which is defined broadly to include “any unlawful, unfair or fraudulent business act or practice.”  (Bus. & Prof. Code, § 17200.)  While the potential application of the statute is exceedingly broad, it provides few—yet powerful—remedies.  Private plaintiffs may obtain an injunction and restitution of money or property acquired by means of unfair competition.  (Id., § 17203.)  Public prosecutors may obtain these remedies as well as civil penalties up to $2,500 per violation, plus up to an additional $2,500 for each violation against an elderly or disabled person.  (Id., §§ 17203, 17206.1.) The FAL protects consumers from “false or deceptive advertising.”  (People v. Super. Ct. (Olson) (1979) 96 Cal.App.3d 181, 190; Bus. & Prof. Code, § 17500.)  Like the UCL, the FAL can be used by either private plaintiffs or public prosecutors, and authorizes injunctive relief, restitution, and (for public prosecutors) civil penalties.  (Bus. & Prof. Code, §§ 17535, 17536.) As these remedies are equitable in nature, they are awarded by the court.  (See id., § 17203 [court may order injunctive relief or restitution]; id., § 17206, subd. (b) [“The court shall impose a civil penalty for each violation of this chapter.”]; id., § 17536.)  Accordingly, courts have regularly stricken jury demands in UCL cases and required parties to try their case to the court.  (See Real Party in Interest’s Opening Brief on the Merits (Dec. 18, 2018) Nationwide Biweekly Administration, Inc. v. Super. Ct., No. S250047, 2018 WL 7108369, at pp. 45-46 [compiling cases denying jury trial right in UCL actions].) Some courts and commentators have observed that this practice stands in tension with the broad scope of the UCL, which can be used to target business practices that violate any law—civil or criminal—including laws that would provide for a right to trial by jury if the claim were brought directly.  For example, if a public prosecutor chose to pursue a predicate violation in a criminal proceeding, the defendant would be entitled to trial by jury, a higher standard of proof, and a host of other protections that are absent when prosecutors elect to try the case as a civil UCL action instead.  Furthermore, claims asserting “fraudulent” and “unfair” business practices often involve fact-intensive inquiries of the kind that, in other contexts, are left to a jury. Finally, even when civil penalties are imposed for enforcement purposes, they may still have a compensatory or punitive aspect, and appear akin to money damages.  (See Kizer v. County of San Mateo (1991) 53 Cal.3d 139, 147-148 [explaining that although civil penalties “may have a punitive or deterrent aspect, their primary purpose is to secure obedience to statues and regulations”].)  Civil penalty awards can also be substantial, raising due process questions about the constitutional limits on awards.  (See, e.g., City and County of San Francisco v. Sainez (2000) 77 Cal.App.4th 1302, 1321 [holding 28% net-worth penalty not constitutionally impermissible against due process challenge]; Cal. Const., art. I, § 17.)  Because the penalties can be so large as to reach the outer bounds of what is constitutionally permissible, due process arguably suggests they should be determined by a jury.  (See Kennedy v. Mendoza-Martinez (1964) 372 U.S. 144, 164-165 [statutory remedies which “are essentially penal in character” should not be imposed without due process “safeguard[]” of trial by jury]; State v. Altus Finance (2005) 36 Cal.4th 1284, 1308 [explaining “[c]ivil penalties . . . are designed to penalize a defendant”].) Nationwide Biweekly presented two of these concerns—predicate violations of laws that require fact-intensive inquiries regarding deceptive advertising, and public prosecutors seeking considerable sums in civil penalties—while denying the defendant a trial by jury.  The Supreme Court’s decision addresses each of these concerns, ruling their application in the UCL and FAL contexts weigh against a state constitutional right to a jury trial. II.   Procedural Background of Nationwide Biweekly The California Department of Business Oversight and several district attorney’s offices acting on behalf of the People sued Nationwide Biweekly Administration Inc., its subsidiary Loan Payment Administration LLC, and its owner Daniel Lipsky (collectively, “Nationwide”) under the UCL, FAL, and other state laws, for false and misleading advertising and for operating without a license.  The government sought to enjoin the allegedly unlawful practices, restitution of all money wrongfully acquired from California consumers, and civil penalties of up to $2,500 for each violation of the UCL.  The defendants demanded a jury trial, and the trial court struck the demand on the government’s motion. Nationwide ultimately petitioned the Supreme Court for review, and the Supreme Court directed the Court of Appeal to issue an order to “show cause why defendant does not have a right to a jury trial where the government seeks to enforce the civil penalties authorized” under the UCL.  The Court of Appeal then granted Nationwide’s peremptory writ of mandate, and, in a published opinion, crafted a narrow right to trial by jury:  only to decide the question of liability, and only when the government seeks civil penalties.  The Court of Appeal determined it would still decide the amount of civil penalties and other remedies to be awarded. The public-prosecutor plaintiffs filed a petition for review of the Court of Appeal’s decision, which the Supreme Court granted on September 19, 2018. The question presented was:  “Is there a right to a jury trial in a civil action brought by the People, acting through representative governmental agencies, pursuant to the Unfair Competition Law (Bus. & Prof. Code, § 17200, et seq.) or the False Advertising Law (Bus. & Prof. Code, § 17500, et seq.), because the People seek statutory penalties, among other forms of relief?” The California Attorney General and the California District Attorneys Association, both of which have “longstanding” practices of trying UCL cases “before the bench,” submitted amicus curiae briefs in support of the governmental entities and against a right to trial by jury. III.   The Supreme Court’s Decision Chief Justice Cantil-Sakauye authored the opinion of the Court in which Justices Chin, Corrigan, and Groban joined.  Justice Kruger filed a separate opinion concurring in the judgment; Justices Liu and Cuéllar joined in Justice Kruger’s separate concurrence.  All seven Justices agreed that all UCL cases must be tried to the court, not a jury, and that in this case, the FAL claim should also be tried to the court.  Collectively, the two opinions spanned 92 pages.

A.   Chief Justice Cantil-Sakauye’s Majority Opinion Speaks In Broad Terms.
In a majority opinion authored by Chief Justice Cantil-Sakauye (joined by Justices Chin, Corrigan, and Groban), the California Supreme Court reversed the Court of Appeal and held that there is no right to a jury trial for causes of action under the UCL or FAL, whether brought by a private party or a public prosecutor, and regardless of the relief sought.  (Nationwide Biweekly Administration, Inc. v. Super. Ct. (Apr. 30, 2020, S250057) ___ Cal.5th ___ [p. 61].)  The Court “express[ed] no opinion” on whether the “jury trial right applies to other statutory causes of action that authorize both injunctive relief and civil penalties.”  (Id., at [p. 4].) First, the Court held that the UCL provides no statutory right to a jury trial because the purpose and legislative history of the UCL “convincingly establish that the Legislature intended” UCL claims to be tried to the court, “exercising the traditional flexible discretion and judicial expertise of a court of equity, . . . including when civil penalties as well as injunctive relief and restitution are sought.”  (Id., at [p. 10].)  In arriving at that determination, the Court highlighted many of the significant UCL cases that have been decided during the “more than 80-year history” of the statute.  (Id., at [pp. 17-24].)  Likewise, after examining seminal FAL decisions, the Court concluded that there was no statutory right to a jury trial because, “as with the UCL, the Legislature intended that the civil cause of action embodied in the FAL would be tried by a court of equity rather than by a jury.”  (Id., at [p. 39].) Second, the Court decided that there is no constitutional right to trial by jury in UCL and FAL cases because the “gist” of an action under the UCL or FAL is equitable, not legal, in nature.  (Id., at [p. 52] [applying “gist of the action” standard outlined in C&K Engineering Contractors v. Amber Steel Co. (1978) 23 Cal.3d 1].)  The Court first considered the nature of the remedies provided by the UCL, finding “the bulk of the remedies”—specifically, restitution and injunctive relief—are “clearly equitable in nature.”  (Id., at [p. 59].)  As for the civil penalty remedy available to public prosecutors, the majority found that even that remedy, under the circumstances, is equitable in nature because the UCL’s penalties, “unlike the classic legal remedy of damages, are noncompensatory in nature” and are used to fund further enforcement.  (Id., at [p. 60].)  The Court also reasoned that the exercise of calculating the amount of a civil penalty under the UCL and FAL invoked equitable principles, as the “court is afforded broad discretion to consider a nonexclusive list of factors”—an assessment “typically undertaken by a court and not a jury.”  (Id., at [pp. 59-60].)  After finding the remedies afforded were more equitable in nature than legal, the Court examined the nature of the UCL and FAL claims themselves.  The “expansive and broadly worded” standards to be applied in determining whether contested business practices were unlawful “call for the exercise of the flexibility and judicial expertise and experience that was traditionally applied by a court of equity.”  (Id., at [p. 60].)  The Court then concluded that UCL and FAL actions “are equitable either when brought by a private party seeking only an injunction, restitution, or other equitable relief or when brought by the Attorney General, a district attorney, or other governmental official seeking not only injunctive relief and restitution but also civil penalties.”  (Id., at [pp. 52-53, 61].)  There is no right to a jury trial for any actions brought under the UCL or FAL.  (Id., at [pp. 53, 61].)
B.   Justice Kruger Arrives at the Same Conclusion by a “Somewhat Different—and Narrower—Path.”
In her separate concurrence, Justice Kruger (joined by Justices Liu and Cuéllar) expressed a preference for deciding the issue on the facts of the case before her and by weighing the relative importance of the remedies sought.  Finding that the case was at too early a procedural stage to do so, Justice Kruger took a “broader look” at the UCL, and agreed with the majority that, because “liability under the UCL inherently rests on equitable considerations . . . of a sort that only the trial court can effectively weigh and determine,” the “gist” of a UCL action is equitable and there is no right to trial by jury.  (Nationwide Biweekly Administration, Inc., supra, ___ Cal.5th ___ [conc. opn. of Kruger, J.], at [p. 4].) However, Justice Kruger disagreed with the majority’s analysis of the FAL.  She contended that unlike the UCL, “nothing about the nature of liability determination under the FAL” implicates the “inherently equitable judgment uniquely suited to a court.”  (Id., at [pp. 6-7, 12].)  Unlike the UCL, determining liability under the FAL does not require weighing the equities such as the competing harms and benefits or the parties’ and public’s interests, and instead requires only findings of fact as to whether the public is likely to be deceived—a task more suited to a jury.  Nonetheless, she concurred in the judgment, reasoning that on the facts of this case, the FAL claim was “inherently intertwined” with the UCL claim because the same questions that would decide FAL liability would be decided by the court for UCL liability.  (Id., at [p. 13].)  As a result, the FAL causes of action in this case are “predominantly equitable in character,” and do not therefore trigger the right to trial by jury.  (Id., at [pp. 12-13].) As Justice Kruger recognized, where UCL and FAL claims are pleaded together, there is no procedural benefit to separating out FAL issues for a jury trial.  (Id., at [pp. 13-14].)  Regardless of how a jury decided a FAL claim, the court would retain the power to nullify that verdict in two ways:  first, by ruling in the opposite manner for the same conduct on the UCL claim; second, by retaining the ultimate authority and discretion to craft remedies for any FAL and UCL violations that may be found.  (Ibid.)  In such cases, the court will effectively determine the ultimate outcome. IV.   Practical Implications and Unanswered Questions
A.   Forum Selection and Severability of Issues That May Be Tried to a Jury.
As the tide of UCL claims brought by private plaintiffs and public prosecutors continues to rise, the existence and extent of a right to try some or all claims to a jury now depends on whether a defendant litigates in state or federal court.  UCL defendants should assess at the outset of litigation whether a jury or bench trial on eligible claims would be preferable, as that determination may affect strategic considerations, including forum selection, removal or remand, and bifurcation:  the outcome may be different depending on the venue. In federal court, “the court may order a separate trial of one or more separate issues [or] claims” for “convenience, to avoid prejudice, or to expedite and economize,” so long as it does not impinge on the right to trial by jury.  (Fed. R. Civ. P. 42, subd. (b).)  Accordingly, where a case presents both legal and equitable claims that do not overlap, the court may bifurcate and “regulate the order of the trial.”  (Danjaq LLC v. Sony Corp. (9th Cir. 2001) 263 F.3d 942, 962.)  But if the legal and equitable issues or evidence overlap, the legal claims must be resolved before the court addresses the equitable issues.  (Id.; Nationwide Biweekly Administration, Inc., supra, ___ Cal.5th ___ , at [p. 68] [citing Tull v. United States (1987) 481 U.S. 412, 425].) In California, however, where there are both legal and equitable issues, the court may decide to try the equitable issues first.  (See Nationwide Biweekly Administration, Inc., supra, ___ Cal.5th ___ , at [p. 44]; Raedeke v. Gibraltar Savings & Loan Assn. (1974) 10 Cal.3d 665, 696; see Orange County Water Dist. v. Alcoa Global Fasteners, Inc. (2017) 12 Cal.App.5th 252, 354 [in cases with both equitable and legal claims, the equitable claims “could, and in many cases should” be tried first].)  If the California court’s determination of those issues also resolves all the legal questions, there could be no need for a jury.  But where the equitable issues do not determine the outcome of the legal issues, there may still be a right to trial by jury on those legal questions.  (Nationwide Biweekly Administration, Inc., supra, ___ Cal.5th ___ , at [p. 43].) Accordingly, Nationwide’s holding adds an additional layer to consider with respect to forum selection, because the opportunity for and scope of a jury trial may vary depending on whether the case is tried in state or federal court.
B.   Application to Other Statutory Schemes That Provide for Civil Penalties and Injunctive Relief.
While the Court held there was no right to a jury trial under the UCL, both the majority and concurring opinions made clear they were not passing upon other statutory schemes that provide for civil penalties and injunctive relief.  The Court’s analysis nonetheless provides a useful guide for understanding which statutory schemes are more likely to come with a jury-trial right. In Nationwide Biweekly, the Court held the civil penalties under the UCL and FAL were equitable in nature because the amount awarded as well as liability itself were determined based on equitable considerations.  In assessing the amount of the civil penalty to be imposed under either the UCL or the FAL, the court has “broad discretion to consider a nonexclusive list of factors,” such as “the relative seriousness of the defendant’s conduct and the potential deterrent effect of such penalties.”  (Id., at [pp. 59-60].)  This type of “qualitative evaluation and weighing of factors is typically undertaken by a court and not a jury.”  (Ibid.)  This made the remedy more equitable in nature, despite its resemblance to the classic legal remedy of money damages. But this may not hold true as to all civil penalties authorized by other statutory schemes.  Indeed, other statutory schemes, such as those providing for statutorily prescribed penalties not implicating the exercise of a judge’s discretion, or those that evince a clear legislative purpose to be punitive rather than restitutionary, may be considered “legal” in nature.  Additionally, if the liability inquiry does not require as complex a balancing of factors as the UCL often does, the “gist of the action” could conceivably be deemed “legal” rather than equitable, potentially triggering the right to trial by jury.
C.   The Right to Trial by Jury Under the Sixth and Seventh Amendments to the United States Constitution.
The Court also declined to address whether the United States Constitution’s Sixth and Seventh Amendments provide an independent constitutional right to trial by jury.  The Court deemed the issue waived, ruling that Nationwide had not advanced this argument in the Court of Appeal.  (Id., at [p. 73, fn. 25].) The Court did, however, conclude that the Court of Appeal erred in relying on the U.S. Supreme Court’s decision in Tull v. United States (1987) 481 U.S. 412.  First, the majority held that Tull “rested exclusively” on construing the right to trial by jury under the Seventh Amendment, which applies only to trials in federal—not state—court.  (Id., at [p. 66].)  The majority also noted the “significant differences in the manner in which the federal and California constitutional civil jury trial provisions have been interpreted and applied,” as well as the difference in statutory standards, given the “type of equitable discretion” that must be exercised under the UCL and FAL.  (Id. at [pp. 72-73].)
D.   Importance of a Statement of Decision To Aid Appellate Review.
Writing for the majority, Chief Justice Cantil-Sakauye noted that an “additional significant benefit” of trying UCL claims to a court, rather than a jury, is that a court must issue “a statement of decision explaining the factual and legal basis for its decision” if requested to do so.  (Id., at [p. 23].)  Such a statement of decision differs, of course, from the kind of verdict forms filled out by juries.  Appellate review of detailed statements of decision, “in turn, promotes the creation of a cumulative body of precedent that improves the consistency of future determinations under the UCL and provides needed guidance to companies” regarding acceptable business practices.  (Id., at [pp. 23-24].)  As the UCL and FAL have no clear boundaries, and in fact are “expanding” to cover “new facts and relations,” the majority found any potential for overreach better tempered by the transparency a court judgment would provide.  (Id., at [pp. 16, 23-24].)  Justice Kruger, on the other hand, found this reasoning “unpersuasive” as a basis to narrow the civil jury trial right enshrined in the California Constitution.  (Nationwide Biweekly Administration, Inc., supra, ___ Cal.5th ___ [conc. opn. of Kruger, J.], at [p. 11].) The Court’s decision underscores the importance of proactively crafting a statement of decision that will be advantageous for purposes of appellate review. V.   Conclusion Nationwide Biweekly forcefully confirms the decades of Court of Appeal precedent holding that UCL (and some FAL) claims are to be decided by judges, rather than juries, and raises a number of strategic considerations to consider in litigating against such claims.
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