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September 15, 2020 |
Supreme Court Round-Up (September 2020)

Gibson Dunn’s Supreme Court Round-Up provides the questions presented in cases that the Court will hear in the upcoming Term, summaries of the Court’s opinions when released, and other key developments on the Court’s docket.  To date, the Court has granted certiorari in 30 cases and set 1 original-jurisdiction case for argument for the 2020 Term, and Gibson Dunn is co-counsel for a party in 1 of those cases.

Spearheaded by former Solicitor General Theodore B. Olson, the Supreme Court Round-Up keeps clients apprised of the Court’s most recent actions.  The Round-Up previews cases scheduled for argument, tracks the actions of the Office of the Solicitor General, and recaps recent opinions.  The Round-Up provides a concise, substantive analysis of the Court’s actions.  Its easy-to-use format allows the reader to identify what is on the Court’s docket at any given time, and to see what issues the Court will be taking up next.  The Round-Up is the ideal resource for busy practitioners seeking an in-depth, timely, and objective report on the Court’s actions.

To view the Round-Up, click here.


Gibson Dunn has a longstanding, high-profile presence before the Supreme Court of the United States, appearing numerous times in the past decade in a variety of cases.  During the Supreme Court’s 5 most recent Terms, 9 different Gibson Dunn partners have presented oral argument; the firm has argued a total of 16 cases in the Supreme Court during that period, including closely watched cases with far-reaching significance in separation of powers, administrative law, intellectual property, and federalism. Moreover, although the grant rate for petitions for certiorari is below 1%, Gibson Dunn’s petitions have captured the Court’s attention: Gibson Dunn has persuaded the Court to grant 29 petitions for certiorari since 2006.

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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 attorneys in the firm’s Washington, D.C. office, or any member of the Appellate and Constitutional Law Practice Group.

Theodore B. Olson (+1 202.955.8500, tolson@gibsondunn.com) Amir C. Tayrani (+1 202.887.3692, atayrani@gibsondunn.com) Jacob T. Spencer (+1 202.887.3792, jspencer@gibsondunn.com) Joshua M. Wesneski (+1 202.887.3598, jwesneski@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.

September 9, 2020 |
Matthew McGill Named a Washington, D.C. Trailblazer

The National Law Journal named Washington, D.C. partner Matthew McGill among its 2020 Washington, D.C. Trailblazers. McGill was recognized for his work convincing the Supreme Court to strike down the Professional and Amateur Sports Protection Act of 1992. The report was published in September 2020. Matthew McGill is an appellate litigator who has participated in 21 cases before the Supreme Court of the United States, prevailing in 16. Outside the Supreme Court, his practice focuses on cases involving novel and complex questions of federal law, often in high-profile litigation against governmental entities.

August 21, 2020 |
California Supreme Court Round-Up – August 2020

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The California Supreme Court Round-Up previews upcoming cases and summarizes select opinions issued by the Court.  This edition includes opinions handed down from December 2019 through August 2020, organized by subject.  Each entry contains a description of the case, as well as a substantive analysis of the Court’s decision.

Updates From the Court

Justice Ming Chin will be retiring at the end of August 2020, after 24 years of service on the Court.  At the June oral argument, his colleagues presented a virtual tribute, and Justice Chin remarked that the current pandemic could provide an opportunity to improve the judicial system.  “The future of law and the future of the courts will be virtual and remote,” Justice Chin said.  Governor Gavin Newsom is expected to announce Justice Chin’s successor before the end of the year.

No update would be complete without recognizing the unprecedented COVID-19 pandemic and the decisive actions of the Chief Justice, Supreme Court, and Judicial Council to preserve the health and safety of the courts, judges and staff, and litigants.  Since March 2020, the Chief Justice has issued numerous orders announcing emergency measures and implementing emergency Rules of Court approved by the Judicial Council, which suspended court operations and jury trials, tolled civil and criminal case deadlines, and suspended almost all unlawful detainer actions statewide through September 1.  The Chief Justice also approved dozens of superior court and Court of Appeal emergency orders, which permitted those courts to implement their own emergency measures and rules.  The Court will continue its recent practice of hearing oral argument virtually through at least the end of 2020, and if it does resume in-person hearings in 2021 they will take place only in San Francisco.  Finally, the Supreme Court ordered the postponement of the July 2020 Bar examination to October 2020, and ordered the State Bar to make every effort to administer the examination online.

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Gibson Dunn's lawyers are available to assist in addressing any questions you may have regarding developments at the California Supreme Court, or in state or federal appellate courts in California.  Please feel free to contact the following lawyers in California, or any member of the Appellate and Constitutional Law Practice Group.

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) Michael Holecek - Los Angeles (+1 213-229-7018, ) 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.

August 14, 2020 |
California Supreme Court Announces 7-Factor “Good Cause” Test for Third-Party Subpoenas

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On August 13, 2020, the California Supreme Court issued its ruling in Facebook v. Superior Court (“Touchstone”), No. S245203, ___Cal.5th___. The decision provides a framework for courts evaluating a criminal defendant’s third-party subpoena of records relating to a crime victim or prosecution witness. In Touchstone, a criminal defendant facing trial for attempted murder sought his alleged victim’s records from Facebook—instead of from the victim himself—in an effort to bolster the defendant’s self-defense theory and gather witness impeachment material. Facebook moved in the Superior Court to quash Touchstone’s subpoena on the basis of the Stored Communications Act, 18 U.S.C. § 2701 et seq. (“SCA”), which prohibits an electronic communications service from disclosing the contents of people’s communications in the absence of certain exemptions, such as consent. The Superior Court denied Facebook’s motion to quash, the Court of Appeal reversed, and the California Supreme Court granted Touchstone’s petition for review.

Writing for a unanimous Court, Chief Justice Cantil-Sakauye remanded the case for a renewed analysis of whether the subpoena was supported by good cause. The Court held that on remand the Superior Court should employ a seven-factor balancing test to determine the existence of good cause, evaluating such factors as, among others, the defendant’s “plausible justification” for the third-party subpoena, the infringement on third-party privacy rights posed by the subpoena, and the availability of the materials sought from alternative sources. The Court’s decision provides much-needed clarity to social media and other web-based companies that are routinely inundated with requests for third-party communications and data for use in court proceedings.

I.  The Court Establishes a Good-Cause Framework for Third-Party Subpoenas of User Communications and Data

In Touchstone, the Superior Court had allowed Touchstone to submit the declaration and exhibits supporting his proposed subpoena under seal and on an ex parte basis, thus depriving both the prosecution and Facebook of any opportunity to challenge whether the subpoena was supported by good cause. Touchstone, supra at [p. 36].

During appellate proceedings, the California Supreme Court unsealed Touchstone’s declaration and exhibits and requested argument from Facebook and the prosecution (which had intervened in the appeal) regarding Touchstone’s subpoena’s good-cause backing. Id. at [p. 38]. Upon viewing the newly-unsealed information, Facebook and the prosecution argued that the subpoena was overbroad (it sought the alleged victim’s entire Facebook account history, without any date limitation); that the subpoena was predicated on speculation that relevant communications might exist; that the material sought was readily available from alternative sources (including the alleged victim himself, whom Touchstone had never attempted to subpoena); and that the alleged victim should be afforded the chance to interpose his own privacy objections to the subpoena.

The California Supreme Court remanded, instructing the Superior Court to hear argument from Facebook, the prosecution, and the defense as to whether the subpoena was supported by good cause, applying the following seven-factor balancing test:

(1) Has the defendant carried his burden of showing a ‘plausible justification’ for acquiring documents from a third party;

(2) Is the sought material adequately described and not overly broad;

(3) Is the material reasonably available to the . . . entity from which it is sought (and not readily available to the defendant from other sources);

(4) Would production of the requested materials violate a third party’s confidentiality or privacy rights or intrude upon any protected governmental interest;

(5) Is defendant’s request timely, or, alternatively, is the request premature;

(6) Would the time required to produce the requested information . . . necessitate an unreasonable delay of defendant’s trial; and

(7) Would production of the records containing the requested information . . . place an unreasonable burden on the [third party]?

Id. at [pp. 15-19] (quotations omitted).

The Court explained that unless this balancing test is satisfied, a criminal defendant’s third-party subpoena must be quashed, regardless of whether the SCA or any other law also independently bars disclosure in a given circumstance.  The Court walked through several of the factors in detail.

Alternative Sources. The Court explained that if alternative sources for information sought via third-party subpoena have not been exhausted, the subpoena is more likely to fail for lack of good cause.  The Court offered several helpful illustrations, citing with approval cases quashing subpoenas where “the proponents can obtain the same information by other means,” the defendant can “readily obtain the [discovery] information through his own efforts,” or “there existed an alternative source for the requested information.”  Id. at [p. 17] (citations omitted).  In Touchstone, for instance, Touchstone never subpoenaed the alleged victim for his own records, nor any of the recipients of the alleged victim’s communications.

Plausible Justification. The Court further explained that whether the defendant has shown a “plausible justification” to acquire the documents sought requires that “each legal claim that a defendant advances to justify acquiring and inspecting sought information must be scrutinized and assessed regarding its validity in strength.”  Id. at [p. 27].

Third-Party Privacy Interests. The Court also explained that “[w]hen, as in the present case, a litigant seeks to effectuate a significant intrusion into privacy by compelling production of a social media user’s restricted posts and private messages, the fourth factor . . . becomes especially significant.”  Id. at [p. 29].  In such cases, the “plausible justification” factor “must be subject to even closer examination in the absence of an apparent relationship between the alleged crime and the sought private communications.”  Id. (noting that in the “present case,” “it is questionable whether there is any [ ] substantial connection between the victim’s social media posts and the alleged attempted murder”).

Finally, the Court also questioned the trial court’s use of ex parte and under-seal proceedings, id. at [pp. 35-38], admonishing trial courts to carefully consider whether “it is necessary and appropriate to proceed ex parte and/or under seal, and hence to forego the benefit of normal adversarial testing.” Id. at [p. 37].

II.  The Court Reserves All Ruling on the SCA’s Independent Bar to Production

Because the Court resolved the appeal by determining that the Superior Court had failed to conduct an adequate threshold good-cause analysis regarding Touchstone’s subpoena, it declined to reach Facebook’s argument that regardless of good cause, Touchstone’s subpoena was barred by the SCA, which broadly prohibits electronic communications providers from divulging the contents of communications in response to a criminal defendant’s subpoena absent an applicable exception. See Facebook, Inc. v. Superior Court, 4 Cal. 5th 1245, 1250 (2018) (holding that third-party subpoenas of electronic service providers are “unenforceable under the [SCA] with respect to communications addressed to specific persons, and other communications that were and have remained configured by the registered user to be restricted”); Facebook, Inc. v. Wint 199 A.3d 625, 629 (D.C. 2019) (“[E]very court to consider the issue has concluded that the SCA’s general prohibition on disclosure of the contents of covered communications applies to criminal defendants’ subpoenas.”). In other words, the Court ruled that because the subpoena may not be supported by good cause, the SCA’s independent bar on disclosure was not yet implicated and need not be addressed.

Chief Justice Cantil-Sakauye and Justice Cuéllar wrote separate concurring opinions to suggest that lower courts should apply a context-dependent and critical lens in future cases regarding the threshold determination of whether an entity is covered by the SCA in the first instance.

III.  Implications of the Court’s Decision

The Court’s decision clarifies the standard that criminal defendants must meet before enforcing third-party subpoenas on social media and other companies seeking the records of potential crime victims or witnesses, holding that their subpoenas fail unless they meet a seven-factor balancing test that evaluates whether the materials can be obtained from a different source, the defendant’s need for the materials, and third-party privacy interests.

Gibson Dunn represented Facebook in the California Supreme Court.


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) Joshua S. Lipshutz - Washington, D.C. (+1 202-955-8217, jlipshutz@gibsondunn.com) Michael Holecek – Los Angeles (+1 213-229-7018, mholecek@gibsondunn.com) Thomas F. Cochrane - Los Angeles (+1 213-229-7095, tcochrane@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.

August 4, 2020 |
California Supreme Court Answers Important Questions About The Bounds Of Legitimate Business Competition Under California Tort And Antitrust Law

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On August 3, 2020, in response to a request from the Ninth Circuit, the California Supreme Court provided guidance on important questions about the bounds of legitimate business competition under California tort and antitrust law in Ixchel Pharma, LLC v. Biogen, Inc., No. S256927. The Court issued a unanimous opinion addressing two issues: (1) whether a claim for tortious interference with an at-will contract requires a showing of an independently wrongful act, and (2) whether business-to-business contracts imposing limits on a contracting party’s business activities are per se illegal under California Business and Professions Code section 16600. Specifically, the Court held that tortious interference with at-will contracts does require independent wrongfulness, and that a rule of reason standard, rather than a per se prohibition, applies to determine whether a restraint in a business-to-business agreement violates section 16600. This decision provides important clarification regarding the elements of these claims, ensuring that vigorous competition aimed at winning customers away from competitors should not give rise to valid claims for tortious interference and that ancillary restraints within business-to-business agreements will continue to be assessed under a reasonableness standard, rather than as per se illegal under California law. Had the Court adopted the rule of per se illegality for such restrictions advanced by Plaintiff Ixchel Pharma, LLC, that approach would have called into question the legality of many common types of business arrangements, such as joint ventures with ancillary non-compete agreements, exclusive dealing agreements, vertical territorial or other restrictions on distributors, and franchise agreements.

Plaintiff Ixchel Pharma Sues Defendant Biogen Regarding A Settlement Agreement Provision That Allegedly Restrained Trade

Plaintiff Ixchel Pharma, LLC (“Ixchel”), a biotechnology company, entered into a terminable-at-will agreement with Forward Pharma (“Forward”) to jointly develop a drug containing the active ingredient dimethyl fumarate (“DMF”) for the treatment of Friedreich’s ataxia, a neurodegenerative disorder. The companies engaged in joint development efforts until Forward decided to withdraw from the parties’ at-will collaboration agreement. Forward terminated the agreement pursuant to a settlement agreement it reached with Defendant Biogen, Inc. (“Biogen”) regarding a patent dispute between the companies related to the use of DMF for the treatment of multiple sclerosis. Ixchel sued Biogen in federal district court asserting violations of federal and state antitrust laws, tortious interference with contractual relations, and violation of California’s unfair competition law (UCL), alleging that Biogen restrained Forward from engaging in lawful business with Ixchel and therefore violated section 16600’s prohibition against restraints of trade. The district court dismissed Ixchel’s amended complaint on the grounds that the Forward-Biogen settlement agreement should be analyzed under the antitrust rule of reason and that section 16600 does not apply outside the employment context.[1]

Ixchel appealed the district court’s decision to the Ninth Circuit. After oral argument, the Ninth Circuit certified two questions of California state law to the California Supreme Court.[2] The California Supreme Court accepted the certification but rephrased and reordered the questions as:

  1. “Is a plaintiff required to plead an independently wrongful act in order to state a claim for tortious interference with a contract that is terminable at will?” and
  2. “What is the proper standard to determine whether section 16600 voids a contract by which a business is restrained from engaging in a lawful trade or business with another business?” Slip Op. at 6.

The Court’s Opinion Provides Important Clarity On The Elements Of A Claim For Tortious Interference With An At-Will Contract And The Standard For Assessing Business-To-Business Agreements Under Section 16600

Justice Liu authored the opinion of the Court, in which Chief Justice Cantil-Sakauye and Justices Chin, Corrigan, Cuéllar, Kruger, and Groban concurred.

First, the Court addressed whether Ixchel must allege that Biogen committed an independently wrongful act in order to state a claim for tortious interference with contract, in light of the fact that the parties’ collaboration agreement was terminable at-will. The Court reviewed the history of economic relations torts under California law, emphasizing the distinction between tortious interference with contractual relations—which generally does not require independent wrongfulness—and tortious interference with prospective economic advantage—which does require an independently wrongful act. According to the Court, it had yet to determine which of those two categories “more closely resembles” the tort of interference with at-will contracts. Slip Op. at 10. After analyzing this issue in the context of its precedent, the Court concluded that “[l]ike parties to a prospective economic relationship, parties to at-will contracts have no legal assurance of future economic relations” (id. at 16) and, therefore, that to state a claim for interference with an at-will contract by a third party, the plaintiff must allege that the defendant engaged in an independently wrongful act (id. at 18). The Court reasoned that allowing claims of interference with at-will contracts without requiring independent wrongfulness would risk chilling legitimate competition and could “expose routine and legitimate business competition to litigation.” Id. at 19.

The Court next turned to the question of the proper interpretation of section 16600. As an initial matter, the Court declined Ixchel’s invitation to resolve only the narrow question of whether section 16600 applies to business contracts. Both parties agreed that it did—and the Court concurred. But the Court explained that because the “primary dispute” between the parties was “whether contractual restraints on business operations or commercial dealings are subject to a reasonableness standard under section 16600,” an “important question of California law, potentially affecting all contracts in California that in some way restrain a contracting party from engaging in a profession, trade, or business,” it was appropriate for the Court to address the broader question of the appropriate standard for such claims. Id. at 19-20.

After reviewing the statutory history and state court precedent, the Court concluded, “a survey of our precedent construing section 16600 and its predecessor statute reveals that we have long applied a reasonableness standard to contractual restraints on business operations and commercial dealings.” Id. at 36. In so stating, the Court noted that it was not disturbing its holding in Edwards v. Arthur Andersen LLP, 44 Cal. 4th 937 (Cal. 2008), and other decisions in which section 16600 was strictly interpreted to invalidate noncompetition agreements that entirely prohibit an employee or business owner from engaging in a profession upon termination of their employment or sale of their interest in a business. Slip Op. at 36. But it distinguished those cases from ones, like the case at hand, involving “contractual restraints on business operations and commercial dealings.” Id. The Court also emphasized the possible detrimental consequences from applying a per se standard to business agreements under section 16600, acknowledging that certain contractual restraints on competition in business-to-business agreements in fact “promote competition.” Id. at 38.

Thus, the Court held that “a rule of reason applies to determine the validity of a contractual provision by which a business is restrained from engaging in a lawful trade or business with another business.” Id. at 40-41. This means that in evaluating whether a restraint in business-to-business agreement runs afoul of section 16600, courts will generally look to whether the anticompetitive effects of the agreement outweigh its procompetitive effects. It remains to be seen precisely how courts will apply the reasonableness standard under section 16600. In its decision, the Court stressed the importance of harmonizing the Cartwright Act and section 16600, stating that they should be “interpreted together” (id. at 38), which suggests that the rule of reason analysis employed for claims brought under the Cartwright Act would also be used for section 16600 claims.

The Court’s decision clarifies the elements of a claim for tortious interference with at-will contracts under California law. It also provides going-forward guidance to courts regarding the standard that applies to contractual restraints on business operations and commercial dealings under section 16600, and ensures that—in accord with federal antitrust law—such restraints will not be deemed per se unlawful.

Gibson, Dunn & Crutcher LLP represented the California Chamber of Commerce in filing an amicus brief in support of Biogen, Inc.

___________________

   [1]   Ixchel Pharma, LLC v. Biogen, Inc., No. 2:17-cv-00715-WBS-EFB, 2018 WL 558781 at *4 (E.D. Cal. Jan. 25, 2018).

   [2]   Ixchel Pharma, LLC v. Biogen, Inc., 930 F.3d 1031, 1033 (9th Cir. 2019).


The following Gibson Dunn lawyers prepared this client alert: Rachel Brass, Thomas Hungar, Daniel Swanson and Caeli Higney.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please feel free to contact the Gibson Dunn attorney with whom you usually work, the authors, or any member of the firm’s Antitrust and Competition or Appellate and Constitutional Law practice groups, or the following lawyers.

Antitrust and Competition Group: Daniel G. Swanson - Los Angeles (+1 213-229-7430, dswanson@gibsondunn.com) Rachel S. Brass - San Francisco (+1 415-393-8293, rbrass@gibsondunn.com) Samuel G. Liversidge - Los Angeles (+1 213-229-7420, sliversidge@gibsondunn.com) Jay P. Srinivasan - Los Angeles (+1 213-229-7296, jsrinivasan@gibsondunn.com) Rod J. Stone - Los Angeles (+1 213-229-7256, rstone@gibsondunn.com)

Appellate and Constitutional Law Group: Theane Evangelis - Los Angeles (+1 213-229-7726, tevangelis@gibsondunn.com) Blaine H. Evanson - Orange County (+1 949-451-3805, bevanson@gibsondunn.com) Thomas G. Hungar - Washington, D.C. (+1 202-887-3784, thungar@gibsondunn.com) Julian W. Poon - Los Angeles (+1 213-229-7758, jpoon@gibsondunn.com) Michael Holecek - Los Angeles (+1 213-229-7018, mholecek@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.

August 3, 2020 |
Developments in Immigration and Customs Enforcement of Foreign Student Visa Policy Under COVID-19

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The COVID-19 pandemic has posed challenges for international students, and the universities and colleges they attend, as they prepare for the Fall 2020 school semester. Post-secondary education institutions responded to these challenges by considering the best interests, as well as the health and safety, of their students in shaping revised programming and remote learning opportunities. This Client Alert provides an overview of an Immigration and Customs Enforcement (“ICE”) policy that instructed international students they could not remain in the country if their schools provided only online classes; litigation brought against that policy, which led to a rescission of the challenged policy; and subsequent developments, including a new policy that would permit international students who were enrolled as of March 9, 2020 to reenter the country and attend an online-only school while prohibiting international students who would be new to the school from doing the same.

I. Overview of the Administration’s Challenged Policy

Citizens of foreign countries who wish to enter the United States to attend school must obtain a nonimmigrant F student visa. “F-1” students are international students who are enrolled in a “full course of study” in elementary, secondary, or post-secondary academic institutions. Ordinarily, a student may count no more than the equivalent of one class or three credits per term toward the “full course of study” requirement if the class is taken online. 8 C.F.R. § 214.2(f)(6)(i)(G).

On March 9, 2020, as the COVID-19 pandemic spread throughout the United States, ICE issued a guidance document stating that ICE “recognize[d] that schools are updating their emergency operations plans to minimize the potential impact of COVID-19 on the school,” including by “provid[ing] online instruction,” and that ICE intended to “be flexible with temporary adaptations.” Immigration & Customs Enforcement, Broadcast Message: Coronavirus Disease 2019 (COVID-19) and Potential Procedural Adaptations for F and M Nonimmigrant Students (Mar. 9, 2020). Four days later, ICE issued another guidance document to address the status of students whose schools “stop[ped] in-person classes” but would “offer[ ] online instructions.” Immigration & Customs Enforcement, COVID-19: Guidance for SEVP Stakeholders (Mar. 13, 2020). “Given the extraordinary nature of the COVID-19 emergency,” ICE exempted F-1 students from the rule that they must attend most classes in person, instead permitting F-1 students to attend only online courses and still remain in the United States. Id. At that time, many universities and colleges had suspended in-person instruction for the Spring 2020 semester. Following ICE’s guidance, many schools made plans to offer online instruction, in whole or in part, for the Fall 2020 semester.

On July 6, 2020, ICE abruptly rescinded its March guidance. ICE directed that “[s]tudents attending schools operating entirely online may not take a full online course load and remain in the United States.” Students enrolled in such program were instructed to “depart the country” or else “potentially face immigration consequences.” ICE also instructed schools to submit operational change plans within weeks and to reissue visa-related forms for each of their F-1 international students within a month.

This abrupt rescission wreaked havoc on the universities and colleges who had been scrambling to provide a meaningful and appropriate Fall semester while facing the challenge of COVID-19. These schools were already having to adapt to new safety and security concerns, as well as juggle putting together a meaningful curriculum, evaluating housing options for students, and addressing a myriad of other challenges. The July 6th rescission failed to acknowledge or account for any of those obstacles.

II. Challenging the Policy in Court

Shortly after ICE announced its new policy, Gibson Dunn filed a lawsuit in the U.S. District Court for the District of Oregon challenging the policy as violating the Administrative Procedure Act on behalf of 20 universities and colleges from the western United States. Univ. of Or. v. Dep’t of Homeland Security, No. 6:20-cv-01127-MK (D. Or.). The schools argued that in promulgating the policy, ICE failed to consider the serious harms arising from its action, including forcing students to quickly relocate across the globe in the middle of a pandemic where they could face challenging conditions and lose educational opportunities. The schools sought a temporary restraining order and a preliminary injunction.

Several other plaintiff groups also brought cases across the United States challenging ICE’s new policy. See State of California v. Dep’t of Homeland Security, No. 4:20-cv-04592 (N.D. Cal.); Regents of Univ. of Cal. v. Dep’t of Homeland Security, No. 4:20-cv-04621 (N.D. Cal.); President & Fellows of Harvard Coll. v. Dep’t of Homeland Security, No. 1:20-cv-11283 (D. Mass.); State of Washington v. Dep’t of Homeland Security, No. 2:20-cv-01070 (W.D. Wash.); John Hopkins Univ. v. Dep’t of Homeland Security, No. 1:20-cv-01873 (D.D.C.); Z.W. v. Dep’t of Homeland Security, No. 8:20-cv-01220 (C.D. Cal.).

In a July 14, 2020 hearing held in Harvard and MIT’s case brought in Massachusetts, a DHS attorney announced that the agency would be rescinding the policy.

III. Subsequent Developments

On July 24, 2020, pursuant to its representation to the court in the aforementioned case, ICE issued new guidance. According to the revised guidance, active F and M students who were “in valid F-1 or M-1 nonimmigrant status on March 9, 2020, including those previously enrolled in entirely online classes who are outside of the United States and seeking to re-enter the country this fall,” will be permitted to count online classes toward a full course of study and may re-enter the United States, as they were under the March guidance. Immigration & Customs Enforcement, Broadcast Message: Follow-up: ICE Continues March Guidance for Fall School Term (July 24, 2020). In so doing, ICE restored the status quo and gave schools flexibility in determining how to structure the upcoming semester.

The July 24 announcement, however, also included an important new limitation—“F and M students in new or initial status after March 9, 2020, will not be able to enter the United States to enroll in a U.S. school as a nonimmigrant student for the fall term to pursue a full course of study that is 100 percent online.” Id. ICE had not previously announced a policy regarding international students coming to the United States for the first time, but under the new guidance, those students are unable to enter or reside in the United States if their courses will be conducted fully online.

At this time, it is uncertain whether any schools will challenge the new July 24 guidance. Gibson Dunn will continue to monitor and assess any developments.


Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please feel free to contact the Gibson Dunn lawyer with whom you usually work, or the following authors:

Debra Wong Yang - Los Angeles (+1 213-229-7472, dwongyang@gibsondunn.com) Matthew D. McGill - Washington, D.C. (+1 202-887-3680, mmcgill@gibsondunn.com) Katherine Marquart - New York (+1 212-351-5261, kmarquart@gibsondunn.com) Joshua M. Wesneski - Washington, D.C. (+1 202-887-3598, jwesneski@gibsondunn.com) Amalia Reiss - Washington, D.C. (+1 202-955-8281, areiss@gibsondunn.com) Aaron M. Smith - Washington, D.C. (+1 202-955-8263, asmith3@gibsondunn.com)

© 2020 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071

Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 21, 2020 |
Supreme Court quietly eliminates critical constitutional protections

Washington, D.C. partner Joshua Lipshutz and San Francisco associates Warren Loegering and Zach Tan are the authors of "Supreme Court quietly eliminates critical constitutional protections," [PDF] published by the Daily Journal on July 20, 2020.

July 20, 2020 |
Supreme Court 2019 Term – Summary Of Decisions Affecting Business Litigation

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The COVID-19 pandemic made this an unprecedented Term at the Supreme Court. The Court heard telephonic oral arguments in May, issued opinions well into July, and deferred ten cases until the October 2020 Term. Despite all of this, the Court’s business docket continued largely uninterrupted.

Gibson Dunn has previously published its annual Round-Up of all the Court’s decisions in the Term just ended, with a preview of next Term. A copy is available here. This summary focuses on the decisions most directly affecting business litigation.

Business Docket: The Supreme Court decided a number of significant business cases this Term. Among those cases were several notable categories:

  • Seven cases involved intellectual property issues, most of which focused on trademark or copyright questions.
  • Four cases presented significant questions of administrative law or the constitutionality of administrative agencies.
  • Four cases involved labor and employment issues.
  • Three cases involved the Employee Retirement Income Security Act (ERISA).
  • Three cases involved environmental law issues.

Throughout the Term, Gibson Dunn’s Appellate and Constitutional Law Practice Group prepared short, same-day client alerts summarizing nineteen of the Court’s most significant business decisions. We provide copies of each of them here.

Spotlight on Gibson Dunn: Four different Gibson Dunn attorneys argued a total of five cases at the Supreme Court this Term. Ted Olson argued Financial Oversight and Management Board for Puerto Rico v. Aurelius Investment, LLC, and Department of Homeland Security v. Regents of the University of California. Miguel Estrada argued Comcast Corp. v. National Association of African American-Owned Media. Matthew McGill argued Opati v. Republic of Sudan. And Amir Tayrani argued Monasky v. Taglieri. No other firm had more lawyers present oral arguments this Term.

Looking Ahead: The Supreme Court already has granted a number of significant business cases for the 2020 Term. The Court will tackle cases involving copyright, personal jurisdiction, ERISA preemption, the constitutionality of the Patient Protection and Affordable Care Act, the constitutionality of the Federal Housing Finance Agency, and the constitutionality of Delaware’s constitutional provision requiring partisan balance in the Delaware judiciary, among other important issues.

As always, Gibson Dunn’s Appellate and Constitutional Law Practice will monitor the Court’s work and report on significant business decisions that affect our clients. We look forward to another interesting Supreme Court Term beginning in October 2020.

The summary of decisions most directly affecting business litigation 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
© 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.

July 15, 2020 |
Supreme Court Round-Up (July 2020)

Following the close of the Supreme Court’s 2019 Term, Gibson Dunn’s Supreme Court Round-Up provides summaries of the Court’s opinions, the questions presented in cases that the Court will hear next Term, and other key developments on the Court’s docket.  Gibson Dunn presented 5 oral arguments during the 2019 Term, and was involved in 18 additional cases as counsel for amici curiae.  To date, the Court has granted certiorari in 31 cases for the 2020 Term, and Gibson Dunn is co-counsel for a party in 1 of those cases. Spearheaded by former Solicitor General Theodore B. Olson, the Supreme Court Round-Up keeps clients apprised of the Court’s most recent actions.  The Round-Up previews cases scheduled for argument, tracks the actions of the Office of the Solicitor General, and recaps recent opinions.  The Round-Up provides a concise, substantive analysis of the Court’s actions.  Its easy-to-use format allows the reader to identify what is on the Court’s docket at any given time, and to see what issues the Court will be taking up next.  The Round-Up is the ideal resource for busy practitioners seeking an in-depth, timely, and objective report on the Court’s actions. To view the Round-Up, click here.


Gibson Dunn has a longstanding, high-profile presence before the Supreme Court of the United States, appearing numerous times in the past decade in a variety of cases. During the Supreme Court’s 5 most recent Terms, 9 different Gibson Dunn partners have presented oral argument; the firm has argued a total of 16 cases in the Supreme Court during that period, including closely watched cases with far-reaching significance in separation of powers, administrative law, intellectual property, and federalism. Moreover, although the grant rate for petitions for certiorari is below 1%, Gibson Dunn’s petitions have captured the Court’s attention: Gibson Dunn has persuaded the Court to grant 29 petitions for certiorari since 2006.

*   *   *  *

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 attorneys in the firm’s Washington, D.C. office, or any member of the Appellate and Constitutional Law Practice Group. Theodore B. Olson (+1 202.955.8500, tolson@gibsondunn.com) Amir C. Tayrani (+1 202.887.3692, atayrani@gibsondunn.com) Jacob T. Spencer (+1 202.887.3792, jspencer@gibsondunn.com) Allison K. Turbiville (+1 202.887.3797, aturbiville@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.

July 13, 2020 |
U.S. Supreme Court to Weigh FTC Restitution Authority

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On Thursday, July 9, 2020, the U.S. Supreme Court consolidated and agreed to review two closely watched cases, FTC v. Credit Bureau Center, LLC (case number 19-825) and AMG Capital Management, LLC v. FTC (case number 19-508), concerning whether Section 13(b) of the Federal Trade Commission Act (“FTC Act”) authorizes the FTC to seek an award of restitution.[1] With this grant of certiorari, the Court will address a circuit split that developed in August 2019, when the Seventh Circuit in FTC v. Credit Bureau Center, LLC broke with eight other circuits and explicitly overturned its own long-standing precedent in holding that the FTC cannot seek restitution under Section 13(b) of the FTC Act.

The implications of this review are significant. The FTC claims broad authority to regulate consumer protection violations, has increasingly targeted industry-leading companies in headline-grabbing matters, and regularly secures massive monetary remedies under Section 13(b). Credit Bureau Center calls the viability of the FTC’s approach into question, and if the Supreme Court affirms the decision, the FTC would be required to navigate a more complex procedural process in order to obtain monetary relief.

Section 13(b) provides that the FTC “may seek, and after proper proof, the court may issue, a permanent injunction” and does not reference monetary relief. Nevertheless, until the Seventh Circuit’s decision in Credit Bureau Center, every circuit court to consider the issue (including the Seventh Circuit thirty years ago in FTC v. Amy Travel Service, Inc.[2]) had held that Section 13(b) implicitly authorizes a wide range of equitable remedies, including restitution, rescission, and disgorgement involving monetary relief, through the word “injunction.” Many such courts have invoked the Supreme Court’s 1946 decision in Porter v. Warner Holding Co., which held in the context of a separate federal statute that a reference to “permanent or temporary injunction, restraining order, or other order” permitted district courts to use “all inherent equitable powers,” including monetary remedies such as restitution.[3]

When a panel of the Seventh Circuit reversed Amy Travel in Credit Bureau Center, it explained that “[a]n implied restitution remedy doesn’t sit comfortably within the text” of Section 13(b), contrasting restitution with injunctions, and describing the latter as forward-facing and the former as a “remedy for past actions.”[4] The panel noted that unlike two remedial provisions in the FTC Act that expressly authorize restitution when the FTC follows specific procedures, Section 13(b) lacks similar language, and to impliedly authorize restitution under Section 13(b) would render the other provisions “largely pointless.”[5] With respect to the decision’s departure from Amy Travel, the panel explained that in the ensuing three decades, “the Supreme Court has clarified that courts must consider whether an implied equitable remedy is compatible with a statute’s express remedial scheme” and instructed courts “not to assume that a statute with ‘elaborate enforcement provisions’ implicitly authorizes other remedies.”[6]

In contrast, in FTC v. AMG Capital Management, LLC, the Ninth Circuit held in December 2018 that Section 13(b) does, in fact, authorize monetary relief. Notably, Ninth Circuit Judge Diarmuid O’Scannlain issued a special concurrence to the majority opinion, calling on the court to hear the case en banc to reconsider its prior holding that Section 13(b) authorizes monetary relief, but the Ninth Circuit denied AMG’s petition for rehearing en banc in June 2019.[7]

Court watchers will not be surprised by the grants of certiorari, given this clear circuit split and the Court’s recent willingness to examine the disgorgement authority of the Securities and Exchange Commission (“SEC”) in Liu v. Securities and Exchange Commission,[8] decided only three weeks ago. In Liu, the Court held that even though the SEC Act of 1934 does not expressly permit disgorgement, this remedy is nonetheless available because the statute permits the SEC to obtain “equitable relief.”[9] The Court, however, also held that any disgorgement remedy must conform with principles of equity, identifying three ways in which the SEC’s disgorgement practices may test the bounds of equity practice: (1) ordering the proceeds of fraud to be deposited in Treasury funds instead of disbursing them to victims; (2) imposing joint and several liability; and (3) declining to deduct even legitimate expenses from the receipts of fraud.[10]

Following the decision in Liu, Credit Bureau Center and AMG each submitted a supplemental brief to the Court regarding Liu’s implications, both arguing that Liu does not conflict with their position because Section 13(b) of the FTC Act, unlike the SEC Act, does not authorize “equitable relief,” and instead speaks only in terms of an “injunction.”

If the Court sides with Credit Bureau Center and AMG, the decision will have significant practical consequences for the FTC. Without legislative intervention, to obtain restitution the agency would largely have to turn to Section 19 of the FTC Act, which explicitly authorizes the agency to obtain monetary relief including restitution, but sets forth a cumbersome and lengthy process, requiring the FTC to first prevail in an administrative proceeding and then seek legal and equitable relief (including restitution) in federal court thereafter.

The FTC has already issued a statement in response to the Court’s announcement that it will review these cases, stating that the Commission “look[s] forward to proving to the Supreme Court that the FTC Act empowers [the FTC] to fully protect consumers by ensuring that money unlawfully taken from them is rightfully returned.”[11] Interestingly, however, in January, FTC Chairman Joseph Simons stated that he would like Congress to clarify that Section 13(b) allows for monetary relief,[12] at least suggesting that the statute is not crystal clear on this issue. And in May 2019, FTC Commissioner Christine S. Wilson requested in congressional testimony that Congress clarify the FTC’s powers under Section 13(b).[13]

Despite the FTC’s stated optimism, several Justices have taken public positions suggesting that they may be open to the Seventh Circuit’s position. In a past oral argument, Justice Gorsuch stated that the Court had never approved lower-court precedent permitting an implied disgorgement remedy stemming from an injunction, and there was no statute governing this remedy, so the Court was “just making it up.”[14] Chief Justice Roberts and Justice Sotomayor have questioned the SEC’s authority to impose monetary penalties, specifically including disgorgement.[15] And in Liu, Justice Thomas argued in his dissent that disgorgement was not an available form of equitable relief in English Chancery Court at the time of the founding, and therefore should not be read into a statute permitting only “equitable relief.”[16]

On the other hand, as reflected in Liu, the Court appears willing to limit the enforcement authority of executive agencies, but reluctant to categorically take remedies off of the table. It is, of course, difficult to predict the how the Court might come out, but this is certainly a case worth watching.

The cases are set for argument in the Court’s October 2020 term. Our experienced teams of FTC, appellate, and trial lawyers—which have litigated these and similar issues in forums across the country—will continue to monitor the cases closely, and are available to discuss these and any related issues.

_______________________

[1] 591 U.S. 2.

[2] 875 F.2d 564 (7th Cir. 1989).

[3] 328 U.S. 395 (1946).

[4] 937 F.3d 764, 772 (7th Cir. 2019).

[5] Id. at 774.

[6] Id. at 767.

[7] 910 F.3d 417, 429-37 (9th Cir. 2018).

[8] 140 S. Ct. 1936 (2020).

[9] 15 U.S.C. § 78u(d)(5).

[10] Liu, 140 S. Ct. at 1946.

[11] Statement of Alden F. Abbott Regarding Supreme Court Orders Granting Review of Two FTC Matters (July 9, 2020), here.

[12] Matthew Perlman, FTC’s Antitrust Powers Under Indirect Attack, Law 360 (Jan. 21, 2020) available at https://www.law360.com/articles/1236118/ftc-s-antitrust-powers-under-indirect-attack.

[13] Oral Statement of FTC Commissioner Christine S. Wilson Before the U.S. House Committee on Energy and Commerce Subcommittee on Consumer Protection and Commerce (May 8, 2019), here.

[14] See Transcript of Oral Argument at 52, Kokesh v. SEC, 137 S. Ct. 1635 (2017).

[15] Id. at 7:20-8:2; 9:5-11; 33:12-18.

[16] 140 S. Ct. at 1950.


The following Gibson Dunn lawyers assisted in the preparation of this client update: Alex Southwell, Ryan Bergsieker, Elizabeth Papez, Kristen Limarzi, Ashley Rogers, Sophie Rohnke, Julie Hamilton, and Emily Riff.

Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work, or any member of the firm’s Privacy, Cybersecurity and Consumer Protection or Antitrust and Competition practice groups, or the following authors:

Alexander H. Southwell – New York (+1 212-351-3981, asouthwell@gibsondunn.com) Ryan T. Bergsieker – Denver (+1 303-298-5774, rbergsieker@gibsondunn.com) Elizabeth P. Papez - Washington, D.C. (+1 202-955-8608, epapez@gibsondunn.com) Kristen C. Limarzi - Washington, D.C. (+1 202-887-3518, klimarzi@gibsondunn.com) Ashley Rogers - Dallas (+1 214-698-3316, arogers@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.

July 10, 2020 |
Ninth Circuit Asks The New York Court of Appeals Whether Litigation Financing Agreements Are “Usurious”

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The New York Court of Appeals recently accepted a certified question from the United States Court of Appeals for the Ninth Circuit that could have far-reaching consequences for the litigation funding industry. Litigation funding typically involves a funder lending money to a client and/or her counsel on a non-recourse basis to pursue legal action in exchange for a share of the proceeds of the litigation. The tripartite relationship between funder, attorney, and client has raised a host of legal issues in the past, and this certified question reflects an important issue relating to so-called “portfolio” litigation funding. Portfolio litigation funding occurs where a funder lends money to an attorney and her clients to use in specific cases in exchange for prospective payment not just from those cases but also from cases where lent funds may not actually be used.

The certified question presents an emerging issue related to portfolio litigation funding:

Whether a litigation financing agreement may qualify as a “loan” or a “cover for usury” where the obligation of repayment arises not only upon and from the client’s recovery of proceeds from such litigation but also upon and from attorney’s fees the client’s lawyer may recover in unrelated litigation?

And, if so, what are the appropriate consequences, if any, for the obligor to the party who financed the litigation, under agreements that are so qualified?

Fast Trak Inv. Co., LLC v. Sax, 962 F.3d 455, 459 (9th Cir. 2020), certified question accepted sub nom. Fast Trak Inv. Co., LLC v. Sax, 2020 WL 3420856 (N.Y. June 23, 2020). In other words, the Court of Appeals will decide whether a portfolio litigation funding agreement is a “loan” and subject to New York’s usury laws where the agreement requires an attorney to pay the funder attorneys’ fees from cases unrelated to the litigation the funder is financing directly. How the Court of Appeals decides the question could have a wide-ranging impact on the growing litigation finance industry in New York and how such issues are resolved in federal and state appellate courts across the country.

Certification Procedure

Certification is an important procedure whereby certain appellate courts that are grappling with a complex, novel issue of New York law can petition New York’s highest court for an answer to the question. 22 N.Y.C.R.R. § 500.27(a). Under New York law, certification requires only that (1) there be no controlling New York Court of Appeals decision on the question at issue; and (2) the certified question is determinative of the outcome of the case. Id. Some courts impose additional requirements before they will submit a certified question. For example, the Second Circuit considers (1) whether “the New York Court of Appeals has addressed the issue and, if not, whether the decisions of other New York courts permit [the court] to predict how the Court of Appeals would resolve it; (2) whether “the question is of importance to the state and may require value judgments and public policy choices”; and (3) whether the question is “determinative of a claim.” Expressions Hair Design v. Schneiderman, 877 F.3d 99, 105 (2d Cir. 2017) (internal quotation marks omitted).

Courts are often reluctant to certify questions to the Court of Appeals because certification can result in added costs and potential delay by requiring the parties to effectively take on an interlocutory appeal before New York’s high court. For that reason, certification is rare. In 2019, the New York Court of Appeals answered only three certified questions and had just two pending at the end of 2019.[1] But as the court in Fast Trak demonstrated, a certifying court may find certification appropriate, either upon a party’s request or sua sponte, when a case turns on an ambiguous question of state law that is particularly important and “likely to have wide-reaching implications.” 2020 WL 3092063, at *9 (noting that certification “helps build a cooperative judicial federalism” (internal quotation marks omitted)).

The New York Court of Appeals has discretion to determine both whether to accept the certification and what procedure it will undertake in answering the question. 22 N.Y.C.R.R. § 500.27(d)-(e). In general, the Court of Appeals accepts only issues that are likely to arise in state court proceedings and are “fact and case-specific,” rather than “[a]bstract or overly generalized questions” that might “curb [its] ability to promulgate a precedentially prudent and definitive answer to a law question.” Yesil v. Reno, 92 N.Y.2d 455, 457 (1998).

Fast Trak and Its Potential Impact on Litigation Finance

In Fast Trak, the Ninth Circuit considered whether a portfolio litigation funding agreement violates New York’s usury laws. 962 F.3d at 458. Under the funding agreement at issue, which was governed by New York law, Fast Trak provided funding for clients bringing specific lawsuits Sax brought as the attorney of record, in exchange for a portion of the proceeds in those cases and his attorney fees in separate unrelated cases. Id. When Sax obtained proceeds for attorney fees (presumably through guaranteed hourly fees, though the opinion is unclear on this point) in those unrelated cases and refused to pay them, Fast Trak sued him for, among other things, breach of contract and breach of fiduciary duty. Id. at 461. In his defense, Sax argued that the contracts constituted usurious loans and were therefore unenforceable. Id. at 461-62.

New York usury laws typically apply only to agreements that constitute a “loan.” Id. at 458. To qualify as a “loan,” “the purported lender must have the right to collect from the purported borrower in absolute terms—that is, a right not dependent on the occurrence of any condition precedent.” Id. at 465. Based on this principle, New York courts have found that litigation finance does not constitute a “loan” when the finance agreement is contingent upon success in a single case. See Cash4Cases, Inc. v. Brunetti, 167 A.D.3d 448 (1st Dep’t 2018). As the Ninth Circuit stated, however, such an agreement stands in “sharp contrast” to the agreement between Fast Trak and Sax, where repayment “was secured in each instance with [Sax’s] future attorney fees in about five to ten unrelated cases,” and thus repayment was “all but guaranteed.” 962 F.3d at 467.

To that end, the Ninth Circuit asked the Court of Appeals to address whether an agreement like that between Saks and Fast Trak constitutes a “loan” or a “cover for usury.” The Ninth Circuit deemed that issue sufficiently novel and its effect on the rapidly growing litigation finance industry sufficiently important to seek certification. Id. at 459 n.3 (citing Ass’n of the Bar of the City of N.Y. Comm’n on Prof’l and Judicial Ethics, Formal Op. 2011-2, 2011 WL 6958790 at *1). Certification was particularly important here, according to the Ninth Circuit, because “the result is likely to have wide-reaching implications,” and because “[o]ther states that have addressed [the issue] have reached conflicting results.” Id. at 468. A court in Colorado, for instance, concluded these portfolio litigation funding agreements constitute “loans,” whereas another in Texas came out the opposite way. Id. at 468 n.8.

Resolution of this issue could impact both current and future litigation finance agreements and particularly portfolio litigation finance agreements. If the Court finds the litigation finance agreement in Fast Trak to be usurious, it also has indicated that it will determine “the appropriate consequences, if any, for the obligor to the party who financed the litigation, under agreements that are so qualified.” 962 F.3d at 459. The Court could, for example, find the contract void, providing the obligor with a windfall; cancel the interest obligation; or revise the obligation to a pay a non-usurious rate. The precise impact of finding these portfolio litigation finance agreements to be “loans” is uncertain, but it may have far-reaching effects.

Gibson Dunn will continue to monitor developments in Fast Trak and other important cases in the New York Court of Appeals.

______________________

   [1]   See 2019 Annual Report of the Clerk of the Court of Appeals at 6, App’x 5, https://www.nycourts.gov/ctapps/news/annrpt/AnnRpt2019.pdf.


Gibson Dunn’s lawyers are available to assist with any questions you may have regarding these developments. For further information, please contact the Gibson Dunn lawyer with whom you usually work, or the following authors:

Akiva Shapiro - New York (+1 212-351-3830, ashapiro@gibsondunn.com) Matthew S. Kahn - San Francisco (+1 415-393-8212, mkahn@gibsondunn.com) Lee R. Crain - New York (+1 212-351-2454, lcrain@gibsondunn.com) Seth M. Rokosky - New York (+1 212-351-6389, srokosky@gibsondunn.com) Grace E. Hart - New York (+1 212-351-6372, ghart@gibsondunn.com) Andrew C. Bernstein - New York (+1 212-351-5234, abernstein@gibsondunn.com) Jason Bressler - New York (+1 212-351-6204, jbressler@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.

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.

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: Privacy, Cybersecurity and Consumer Protection

Alexander H. Southwell +1 212.351.3981 asouthwell@gibsondunn.com Ahmed Baladi +33 (0) 1 56 43 13 00 Timothy W. Loose +1 213.229.7746 tloose@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.

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.)


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. - Co-Chair, Litigation Practice, Los Angeles (+1 213-229-7000, tboutrous@gibsondunn.com) Catherine A. Conway - Co-Chair, Labor and Employment Practice, Los Angeles (+1 213-229-7822, cconway@gibsondunn.com) Julian W. Poon - Los Angeles (+1 213-229-7758, jpoon@gibsondunn.com) Michael Holecek - Los Angeles (+1 213-229-7018, mholecek@gibsondunn.com) Lauren M. Blas - Los Angeles (+1 213-229-7503, lblas@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 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.

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

Theodore B. Olson +1 202.955.8668 tolson@gibsondunn.com

Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com

Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com

Joshua S. Lipshutz +1 202.955.8217 jlipshutz@gibsondunn.com

Lucas C. Townsend +1 202.887.3731 ltownsend@gibsondunn.com

Related Practice: Administrative Law and Regulatory Practice

Helgi C. Walker +1 202.887.3599 hwalker@gibsondunn.com

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:

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

Securities Enforcement Practice

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
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