The Supreme Court of the United States has agreed to step in to resolve a long-running dispute between Florida and Georgia. As noted in my previous post, it is the second Florida case on the Supreme Court’s docket this term that involves Florida’s commercial fishing industry.

Profound economic implications are at stake for each state.

For Georgia, the outcome could determine the sustainability of continued growth of the state’s largest metropolitan area. For Florida, the outcome may impact the economic prospects of commercial fishermen and a region of the panhandle.

Environmental concerns are also in play. Hanging in the balance is the welfare of a biodiverse natural area, protected species of mussels, and spawning grounds for Gulf sturgeon, a threatened species.

Apalachicola vs. Atlanta

As is true of many disputes between states, water rights are at issue in Florida v. Georgia. More specifically, the dispute centers around Georgia’s consumption of water from the Chattahoochee River (as well as Lake Lanier, which feeds the Chattahoochee) and the Flint River. Both rivers flow south from the Atlanta area before converging near the Georgia-Florida border to form the Apalachicola River:     

ACF Region.jpgFrom there, the Apalachicola River flows south through the Florida panhandle into the Apalachicola Bay and the Gulf of Mexico. Due in significant part to freshwater inflow from the river, the Apalachicola River and Apalachicola Bay are rich in biodiversity, so much so that the bay and a large section of the river and its floodplain have been designated a National Estuarine Research Reserve.

Among the many wildlife species making their homes in the Apalachicola Bay are endangered and threatened species of mussels. The bay also serves as spawning habitat for Gulf Sturgeon, a threatened species.

And the inflow of fresh water from the Apalachicola River has made the Apalachicola Bay fertile breeding ground for oysters. Historically, the bay has been Florida’s prime location for commercial oyster harvesting.

But that has changed in recent years. Oyster harvests were down 60% in 2013, leading the U.S. Secretary of Commerce to declare a commercial fishery failure. This year, the Florida Fish and Wildlife Conservation Commission (FWC) has implemented severe restrictions on harvesting, and is considering closing the oyster harvest in the bay altogether.

The loss of oysters in Apalachicola Bay coincides with decreasing inflows from the Apalachicola River, resulting in increased salinity in the bay, making conditions less favorable for oysters. According to Florida, the decreased inflow is the result of Georgia taking more than its fair share of water upstream, resulting in smaller quantities of water flowing downstream.

As the Atlanta metropolitan area has grown, Georgia has steadily increased consumption of water that would otherwise flow from the Chattahoochee and Flint Rivers into the Apalachicola River and Bay. But Georgia denies that its consumption has harmed the Apalachicola. In opposing Florida’s request for the Court to hear the case, Georgia asserted that Florida’s real issue is with the Army Corps of Engineers, which controls water releases upstream dams. It also said the decreased flow to the Apalachicola is attributable to droughts in recent years, not Georgia’s consumption of water.

The dispute has been building since 1989, when the Army Corps of Engineers first proposed allocating more water to Georgia. Georgia, Florida, and Alabama reached temporary agreements for water use to maintain an uneasy status quo for a time. It was followed by litigation involving (but not directly between) all three states, the Army Corps of Engineers, and a group of power customers that buy power generated from a dam on Lake Lanier.

Finally, in 2013, Florida opted to sue Georgia directly, and asked the Supreme Court to intervene. With the Supreme Court’s recent decision to accept the case, Florida will now get its day in court. By extension, so will the Apalachicola Bay and its commercial oyster fishing industry.

Not Your Typical Supreme Court Case

Florida v. Georgia is an original proceeding, which means the Supreme Court will be the first and last court to address the dispute. In most cases, the Supreme Court serves as an appellate court reviewing the decision of a lower appellate court. It generally decides purely legal issues, with facts developed long before a case reaches the Supreme Court.

Disputes between states are a different animal. Under Article III, Clause 2 of the United States Constitution, in “all Cases…in which a State shall be a Party, the Supreme Court shall have original Jurisdiction.” Based on that constitutional provision, Congress has enacted 28 U.S.C. section 1251(a), under which the Supreme Court’s jurisdiction is exclusive (meaning it is the only court in which suit may be brought) in any suit in which one state is suing another.

But the Supreme Court has discretion to decide whether such a suit is appropriate for resolution by the Court. A state wishing to sue another state must ask the Court for permission to file its complaint, which Florida did in October 2013.

Before deciding whether to take Florida’s case, the Supreme Court asked the Solicitor General of the United States (the federal government’s Supreme Court counsel) for its views on whether the case should be accepted. Although the Solicitor General suggested waiting to hear the dispute until after the Army Corps of Engineers has revised its own procedures, the Supreme Court decided that the case should be heard now.

The litigation will now begin in earnest, beginning with Georgia filing an answer to the complaint. Because the Supreme Court is not a trial court generally engaged in deciding disputed facts, the Court generally appoints a special master to conduct initial proceedings. The special master prepares a report, with findings and recommendations, either party can object to the report, and the Supreme Court reviews the special master’s report, considers any objections, and issues an opinion.

Ultimately, the question for the Supreme Court is how to equitably apportion the rivers’ water. In other words, it will decide the fairest way to allocate water among the states’ competing interests. That decision will affect the future of natural resources, industry, and citizens of both states.

Florida commercial fishing industry, meet the Supreme Court of the United States. The Supreme Court has agreed to hear three cases from Florida in its current term, two of which involve commercial fishing.

In the most recently granted case, the state of Florida is set to do battle with the state of Georgia, in a dispute over Georgia’s consumption of water from two rivers that flow south through Georgia before converging and flowing through northwest Florida into the Gulf of Mexico. On November 3, 2014, the Supreme Court granted Florida’s motion for leave to file its complaint against Georgia, which is tantamount to the Supreme Court agreeing to hear the case. I will preview that case in my next post.  

This post focuses on a second case from Florida involving commercial fishing, Yates v. United States, which has been on the Supreme Court’s docket since late April. Oral argument has been set for today, November 5, 2014. While affecting fewer Floridians, the case has drawn participation from a host of amici curiae (literally, “friends of the court,” parties not directly involved with the case that want to weigh in to assist the Court in reaching its decision), indicating that it is seen as having the potential to have significant legal consequences.

Is Throwing Fish Overboard a Federal Crime?  

In Yates, the Supreme Court is reviewing the Eleventh Circuit’s interpretation of a federal statute that, at first blush, would seem to have nothing to do with commercial fishing. But the 11th Circuit concluded that it is fully applicable to commercial fishermen.

The statute, 18 U.S.C. section 1519, was passed in the wake of the Enron scandal, as part of the Sarbanes Oxley Act (SOX). Intended to avoid a repeat of the type of fraud perpetrated by Enron on investors and employees, SOX imposed more stringent accounting and financial reporting requirements for public companies, as well as other reforms.

Section 1519 was intended to close a loophole that allowed Enron to avoid punishment for its concerted efforts to destroy evidence and thwart investigation of its fraud. Accordingly, the statute makes it a crime to destroy or conceal “any record, document, or tangible object with the intent to impede, obstruct, or influence” a federal investigation. 

Other than federal prosecutors, few would have thought that Congress had John Yates in mind when it passed section 1519. Yates was the captain of a commercial fishing boat that was fishing for red grouper in the Gulf of Mexico in August 2007, when an FWC Officer boarded his vessel to inspect for compliance with fishing regulations. (At the time, Yates’ boat was fishing in federal waters, and the FWC officer had been deputized by the National Marine Fisheries Service.)

The FWC officer measured red grouper he suspected were shorter than 20 inches long, the minimum size then-current regulations allowed to be harvested. He found 72 undersized red grouper, issued a regulatory citation, and placed the undersized red grouper in wooden crates in the fish box on Yates’ boat, instructing Yates and his crew not to disturb them.

After returning to shore, the FWC officer measured the crated fish in the fish box, and found only 69 red grouper to be undersized, three fewer than before. He believed Yates and his crew had replaced the original fish with other fish. A member of Yates’ crew said Yates had instructed the crew to throw some undersized fish overboard.

As a result, prosecutors charged Yates with violating section 1519. Harvesting undersized fish is a civil regulatory violation, which could have subjected Yates only to paying a fine and having his fishing license suspended.

But because he had allegedly thrown undersized fish overboard, he faced criminal penalties under section 1519. He was eventually convicted and sentenced to spend 30 days in jail. Due to the conviction, he has been unable to find work as a captain.

The issue in the case before the Supreme Court is whether throwing fish overboard falls within the conduct made illegal by section 1519. More precisely, the issue is whether throwing fish overboard amounts to destroying or concealing a “tangible object” as that term is used in section 1519.

The 11th Circuit had little trouble concluding that it does. Its reasoning was simple. The Supreme Court has instructed that statutes should be interpreted according to the plain meaning of their terms. Unless the words are ambiguous, courts aren’t supposed to look to the intent behind the law. The term “tangible object” doesn’t appear to be ambiguous. And it literally means any physical object. A fish is a physical object. So the statute would seem to apply to Yates, even though Congress may not have intended it to apply to him.

There is no circuit split on the issue to resolve, which is the primary basis on which the Supreme Court generally agrees to hear cases. No other court of appeals is known to have confronted the issue whether a fish is a “tangible object” under section 1519. And the language of the statute seems clear enough.

So why would the Supreme Court take up the case? The answer may be that the case cries out for placing some limits on the doctrine of blindly applying federal criminal statutes, without any consideration of legislative intent, practical outcomes, or the appropriateness of making conduct a federal crime — at least in some circumstances.

The Supreme Court’s 2014 decision in Bond v. United States may provide a clue as to the Court’s thinking. In that case, the government invoked a statute dealing with chemical warfare to prosecute a woman who had tried to poison her former best friend, after discovering that she was pregnant with the woman’s husband’s child. Although the woman’s conduct fell under the literal meaning of the statute, the Supreme Court looked further. The statute’s wording may not have been ambiguous in itself, but Congressional overreach made it ambiguous in a sense:

[T]he ambiguity derives from the improbably broad reach of the key statutory definition given the term—“chemical weapon”—being defined; the deeply serious consequences of adopting such a boundless reading; and the lack of any apparent need to do so in light of the context from which the statute arose—a treaty about chemical warfare and terrorism. We conclude that, in this curious case, we can insist on a clear indication that Congress meant to reach purely local crimes, before interpreting the statute’s expansive language in a way that intrudes on the police power of the States.

Similar concerns about making it a federal crime to throw fish overboard may have motivated the Supreme Court to take up Yates. Most of the large contingent of amici curiae–including libertarian and pro-business groups, professors, criminal defense lawyers, and former House Financial Services Committee Chairman Michael Oxley, the Oxley in Sarbanes Oxley–urge the Court to go in a similar direction in Yates as it did in Bond. Many of the amicus briefs focus on what they call “overcriminalization” of conduct under federal law, and ask the Supreme Court to impose limits on the permissible reach of federal criminal law.

SOX seems like a good statute to use to advance that argument. It was controversial when passed, with some saying its requirements are too onerous, and it is highly disliked by Wall Street and others in the business community.   

But the question remains whether the majority of the Supreme Court will consider prosecuting a commercial fisherman under SOX a “curious” enough case to justify looking beyond the unambiguous words of the statute. If so, the bigger issue will be how the Court draws the line as to when courts may look behing the plain meaning of statutory terms when determining the scope of conduct made illegal by a federal criminal statute.    

The U.S. Supreme Court may not be willing to go as far some had hoped in overruling its precedents. That is the message from the Supreme Court’s June 23, 2014 decision in Halliburton Co. v. Erica P. John Fund, Inc. Adherence to precedent won the day in Halliburton, as the Court upheld the so-called “fraud on the market” presumption that enables securities fraud suits to be brought as class actions.

The specific issue of the case was of significance to Wall Street, investors, class action lawyers, and publicly traded corporations. But the larger question was how willing the current Supreme Court is to overturn its own precedents.  

At stake in Halliburton was whether the Supreme Court would reconsider the fraud on the market presumption, first embraced by the Court in Basic, Inc. v. Levinson, 485 U. S. 224 (1988). It is no exaggeration to say that overruling Basic would have put an end to securities fraud class actions. Many on Wall Street and in corporate boardrooms have long sought that result, to eliminate what they see as a nuissance that has become ubiquitous. Many investors (and their lawyers), on the other hand, would have mourned the death of what they consider to be an importance source of deterrence against fraud and a means (albeit limited) of obtaining compensation for fraud when it occurs. 

What is the the fraud on the market presumption and why is it so important? The presumption solves a basic problem in securities class actions. For a case to proceed as a class action, the plaintiffs must show, among other things, that the claims can be tried on behalf of a class of persons who are similarly situated to the plaintiffs (without the class members individually trying their claims) because most of the issues to be tried are common to all members of the class, i.e., if each class member were to bring suit individually, each would need to prove the same thing that the plaintiffs will prove in the class action trial. This factor is known as predominance — common questions must predominate over individual questions.

As is true of fraud claims generally, to prove securities fraud under the federal securities laws, the plaintiff must prove not only that the defendant made a fraudulent statement, but that the plaintiff relied on the fraudulent statement to his/her/its detriment. Whether any individual relied on a statement is generally an individualized inquiry. Did the individual hear or read the statement? Did he/she/it believe the statement? Did he/she/it take action (or refrain from taking action) because he/she/it believed it?

Such individualized inquiries are considered to prevent common questions from predominating over individual questions. Thus, if proof of actual reliance were required, a class action asserting claims of securities fraud could not be successfully maintained.    

The fraud on the market presumption solves that problem. It is based on the efficient markets hypothesis, which posits that when securities trade on an efficient market, the price of the securities will tend to incorporate all available information about the underlying business.Thus, if a corporation or its executive leadership makes a statement about the financial health of the corporation, investors will assimilate the information provided and the share price of the corporation will be affected.

The fraud on the market presumption incorporates that principle, such that a misrepresentation by a corporation or executive is presumed to have impacted the price of the corporation’s securities. So any investor who purchases the corporation’s securities at a price that was impacted (artificially inflated) by a misrepresentation, without showing direct reliance on the statement itself, can show reliance indirectly, by showing that he/she/it relied on the integrity of the price of the securities, which was artificially inflated by the misrepresentation.

All securities fraud class actions rely on the fraud on the market presumption. If the plaintiffs can show that the securities traded on an efficient market, that the misrepresentation was known to the public and material, that the plaintiff bought securities after the false statement was made but before the truth came to light, they are entitled to the fraud on the market presumption, thus making it unnecessary to prove individual reliance.

The defendants can then try to rebut the presumption, by disproving that the statement affected the prices of the securities, or by showing that the plaintiff did not actually rely on the price of the securities as being accurate.   

Economists have for years debated whether the efficient market hypothesis is truly valid. And correspondingly, lawyers have argued over the wisdom of the adoption of the fraud on the market presumption in Basic.

Seizing on that debate, and what some see as a Supreme Court that is willing to overturn even 25-year old precedents, the defendants in Halliburton expresly asked the Supreme Court to overrule Basic. And in granting certiorari, the Supreme Court agreed to consider doing so.

But, ultimately, only three dissenting justices saw fit to overrule Basic, with six — Chief Justice Roberts and Justices Kennedy, Ginsburg, Breyer, Sotomayor, and Kagan — voting to uphold it.

In so doing, Chief Justice Roberts, writing for the Court, indicated that the Court still adheres to its traditional hesitance to overrule settled precedent that has not always been evident in recent decisions. Even if the Court thinks the precedent was wrong, that is not enough to overturn it: 

Before overturning a long-settled precedent,…we require “special justification,” not just an argument that the precedent was wrongly decided.    

Moreover, the Court noted, “the principle of stare decisis has ‘special force'” when the issue is one of statutory interpretation, as was the issue in Basic.

Halliburton’s main reasons for overturning Basic were (1) that it was decided contrary to Congressional intent; and (2) that advancements in economic theory have undermined the validity of the efficient market hypothesis.

The Court rejected both arguments. It was unnecessary to address the first argument at length, because it was discussed by the dissenters in Basic but rejected by the Court majority. There was “no new reason to endorse it now.” 

The second argument was rejected because Halliburton had only pointed out that there is a debate among economists as to how quickly markets incorporate information and that there are variations in efficiency among markets. But that debate was ongoing at the time when Basic was decided. And Basic did not assume that markets were perfectly efficient, only that stock prices are responsive to public information about a corporation.

Although the Court rejected Halliburton’s efforts to overrule Basic, it agreed that defendants should have the opportunity to offer evidence to defeat the presumption of reliance, by showing at class certification that the price of the securities at issue was not affected by the statement at issue. Basic expressly contemplated that defendants would be permitted to rebut the presumption, the Court explained.

So securities class actions continue to be viable, to the chagrin of some and the relief of others, while defendants may have gained some additional ammunition to fight them. But in the bigger picture, what the decision portends is that the principle of stare decisis (hesitance to overrule prior decisions) remains vibrant, especially in the realm of statutory interpretation. 

Issuing its opinion in DMT vs. TMH, a closely watched case that drew national attention, the Supreme Court of Florida today declared that a woman has constitutionally protected rights to raise a child created by artificial insemination using her ovum, with the fertilized ovum carried and the child born by her then-committed partner, and initially raised by the woman and her former partner. Justice Pariente wrote the opinion for the Court, with Justice Polston writing a dissenting opinion in which two other justices joined.

The facts are these. DMT and TMH were in a committed lesbian relationship for about 11 years. They decided to have a child by in vitro fertilization, using TMH’s ova fertilized by donated sperm, with the fertilized ova implanted in DMT. DMT gave birth to the child and DMT and TMH raised the child together as equal parents, initially in the home they shared. DMT and TMH, who could not marry in Florida, split up about 17 months after the child was born. They initially continued to co-parent the child after the split, agreeing that the child would divide time between their homes. But things turned nasty, and DMT ran away with the child and denied TMH any contact with the child.

TMH finally found DMT in Australia. She sued DMT to establish her right to co-parent the child. The problem for TMH was that section 742.14, Florida Statutes, which deals with surrogacy, extinguishes the parental rights of egg and sperm donors to  children created from their donated genetic material. The trial court found that section 742.14 was controlling, and ruled in favor of DMT, despite stating that DMT’s actions were morally reprehensible and against the interests of the child.

The Fifth District Court of Appeal (in Daytona Beach, which hears appeals from portions of central and northern Florida) reversed the trial court, holding that section 742.14 did not apply, finding TMH was not a “donor” under the statute because she did not intend to give her ova away (i.e. to “donate” it), but rather always intended to raise any child that resulted from her egg, even though she wouldn’t be carrying and giving birth to the child. 

The majority of the Florida Supreme Court rejected that interpretation. It held that section 742.14 did apply, because whether someone is considered a “donor” under the statute doesn’t depend on what her intentions were, but rather only on whether she gave genetic material. That conclusion was compelled by statutory language as well as practical considerations. If intentions matter, then any sperm or egg donor could say that he/she didn’t really intend to give up the child, and thus avoid the effect of the statute, which aims to prevent drawn out custody battles over children created from donated eggs and/or sperm.

But the the majority agreed with the 5th DCA’s result, based on a more monumental, and potentially farther reaching, basis. They found that the statute was unconstitutional as applied to the circumstances in DMT, in that TMH not only contributed genetic material, but also took on the responsibility for raising the child after it was born. Thus, her situation was analogous to an unmarried father of a child, which courts have held has inchoate parental rights that become constitutionally protected if the father takes on the responsibilities of raising the child.

Denying parental rights to an individual in TMH’s circumstances, the majority held, violates the Due Process, Privacy, and Equal Protection clauses of the Florida Constitution, as well as the Due Process and Equal Protection clauses of the United States Constitution.

Not surprisingly, the United States Supreme Court’s decision in United States v. Windsor, 133 S. Ct. 2675 (2013), in which the Court declared Title II of the Defense of Marriage Act to be unconstitutional by denying Equal Protection to gay married couples, figured prominently in the Florida Supreme Court’s constitutional analysis in DMT.

But the Court also based its decision on the Florida Constitution (in addition to the United States Constitution), and was careful to point out that its finding that the Florida Constitution was violated was “separate” from its finding that the United States Constitution was violated. In doing so, the Court likely insulated its decision from further review by the United Supreme Court. The Florida Supreme Court has the last word in interpreting the provisions of the Florida Constitution, and the United States Supreme Court generally does not involve itself in cases in which there is an independent state law basis for the decision, even if federal issues are also decided.

The Court further insulated its decision from review by the United States Supreme Court by grounding its decision on the Privacy clause in the Florida Constitution, which has been held to provide broader protection of privacy rights, including parental rights, than is provided by the United States Constitution. (Unlike the Florida Constitution, the U.S. Constitution does not have an explicit privacy clause, although privacy is addressed in the context of searches and seizures, and has been held to be implied by the Due Process clause.) So the Florida Supreme Court’s interpretation of the United States Constitution (as well as of the Florida Constitution) as protecting the parental rights of women in TMH’s position is likely to stand.  

2011 will surely go down as the Year of the Class Action in the Supreme Court of the United States.  If you were surprised at the potential effects of Concepcion v. AT&T Mobility LLC for consumer class actions (unlike many observers, I didn’t see it as their end), then you might want to sit down before reading the Court’s decision in Walmart v. Dukes — which has far greater implications for employment discrimination class actions.

In my first entry on this blog back in April, I wondered where the Court was going with Dukes.  Was it looking to address when (if ever) the easier-to-satisfy Rule 23(b)(2) can be used to certify a class seeking monetary relief?  Plaintiffs’ burden of proof in showing that a class satisfies the requirements of Rule 23?  Or was the Court bothered by an issue specific to Title VII class actions only — the theory that allowing “excessive subjectivity” in hiring decisions can be a “pattern or practice” that may be actionable in an employment discrimination suit if the plaintiffs show a disparate impact on women?

And correspondingly, would the decision’s effects extend to: (a) only civil right cases; (b) all (b)(2) classes; or (c) all class actions?  While many think the answer is all of the above, I think the decision is for the most part confined to (a) and (b).

The Basics of the Decision

The thrust of the Dukes decision can be gleaned from this comment by J. Russell Jackson (who makes his living defending corporations against class actions) on his blog Consumer Class Actions and Mass Torts: “”it’s like an 8-year-old’s Christmas morning in my office!”

Lawyers on the plaintiffs’ side, on the other hand, must feel like they found coal in their stockings, despite what they told the National Law Journal when it called for their reactions.

A description of the background, facts, and procedural hisory of the case can be found in my earlier post, so I’ll focus on the holding.

The Court was unanimous in rejecting the court of appeals’ conclusion that Rule 23(b)(2) certification was appropriate.  The Court also addressed Rule 23(a), with a 5-4 majority rejecting the 9th Circuit’s finding that the class members shared “common issues of law or fact” satisfying Rule 23(a)(2)’s “commonality” requirement.

Either holding would have been sufficient to reverse the decision on appeal, and appellate courts generally try to confine their analyses to what is necessary to decide the case before the court, so it’s somewhat surprising that the Court addressed both points.  Perhaps it did so to ensure that the case wouldn’t wind up back before the Court if the plaintiffs tried another route to certification on remand.  Then again, the Court may have simply felt that since the issues were already teed up, it would be more efficient to decide them now than to wait for them to be brought up again in some future case.

Defense lawyer Jackson goes on to say that the Court fulfilled 5 of the 8 wishes on his wishlist.  I personally think he overstates it a bit.  At least 2 of his wishes — that courts must perform a rigorous analysis at class certification, and can’t use Rule 23 to abridge substantive rights — had been granted by the Court long ago.  And the courts of appeals had already unanimously endorsed another of his wishes: that courts must decide merits issues where necessary to the Rule 23 analysis.

That said, it’s hard to argue with the notion that Dukes embraces many positions advanced by class action defense lawyers.  And I think the decision has the potential to all but eliminate private enforcement class actions under Title VII, as well as the use of Rule 23(b)(2) in cases involving monetary claims (i.e., it will not be used in most cases brought by for-profit law firms).

What About Other Types of Class Actions?

The impact on class actions that don’t involve civil rights is not as clear to me.  Many commentators are saying that the Court’s description of commonality will impact all class actions.  But I’m not so sure.

Cases Like Dukes Are Highly Individualized

One thing to remember when reading appellate decisions is this:  context always matters.  And that is particularly true in Dukes.  As in many Title VII class actions, Dukes is an effort to try very individualized legal claims through representative plaintiffs.  In the absence of an explicit written policy to discriminate or a test designed to achieve the same goal, decisions to hire or promote an employee are extremely individualized.  They’re based not only on an applicant’s qualifications and performance, but also on the qualifications and performance of competing applicants.

So proving that a particular hiring or promotion decision was unlawful is often inseparable from the individual circumstances of that decision.  The “excessive subjectivity” theory was an attempt to get around that problem through statistics.  But statistics in such a case may tell you something about the employer’s overall hiring, but they still can’t say with certainty whether any particular person was adversely impacted.

I’ve always felt that plaintiffs in Title VII cases were held to a lesser standard than in other class actions.  That was likely attributable to the the historical bond between class actions and civil rights actions — Brown v. Board of Education is probably the most famous class action to this day — as well as the understanding that Rule 23’s drafters had civil rights class actions in mind.

After Dukes, forget the Advisory Committee Notes to Rule 23(b).  They may say that provision is meant to apply to “various actions in the civil-rights field where a party is charged with discriminating unlawfully against a class…”  But the text of the rule specifically refers to cases involving “declaratory or injunctive relief.”

So courts’ traditional understanding that Rule 23(b) also encompassed other forms of “equitable relief” in civil rights cases (i.e., backpay) even though monetary in nature, was misgurided, according to the Court.  But in a nod to Brown, perhaps, the Court clarified that when the Advisory Committee notes speak of civil rights cases, they are referring to desegregation cases and the like, where only non-monetary relief is at issue.

So I think one major lesson of Dukes is that civil rights cases are to be treated the same as any other class action.

The Court’s Rule 23(a)(2) Analysis Is Not A Major Change

Which brings us back to the principle that context always matters.  In my view, the Court’s discussion of commonality is inseparable from its rejection of the “excessive subjectivity” theory.  And the Court’s finding that the class didn’t satisfy commonality loses much of its significance when removed from that context.

So I don’t think that the Court’s analysis of the requirement of commonality under Rule 23(a)(2) will have quite the impact on other types of cases that many are predicting.  In fact, I don’t think the Court really changed the standard that generally applies in determining whether the class members share common issues of law or fact.  To satisfy commonality, the Court said:

[The class members’] claims must depend upon a common contention…That common contention, moreover, must be of such a nature that it is capable of classwide resolution—which means that determination of its truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke.

What’s new about that?  In the types of cases that I’ve always understood to be good candidates for class action treatment, which is to say where the substantive claims are defendant-centered, that commonality standard would appear to be satisfied.

Take, for example, a price-fixing case.  A “common contention” that is “central to the validity of each one of the claims” is the existence of a price-fixing scheme among the defendants.  And if one plaintiff proves that such a scheme existed, it generally will have resolved that contention class-wide, “in one stroke.”

The same is true in a 10b-5 securities case.  When a plaintiff resolves the central issue of whether the defendants made false or misleading statements, that issue is resolved class-wide.  So too in an Enron-style ERISA cases alleging imprudent investment in an employer’s stock.  When a plaintiff resolves the central contention that it was imprudent for plan managers to invest plan assets in the investment vehicle at issue, the validity of that contention is established class-wide, “in a single stroke.”

              The Court’s Rule 23(b)(2) Holding is Significant, But Mostly for Title VII Cases

There’s no denying that the Court severely restricted the use of the Rule 23(b)(2) accross the board.  The Court nominally left open the possibility that (b)(2) might be used where monetary relief is “incidental to requested injunctive or declaratory relief” and “damages…flow directly from liability to the class as a whole on the claims forming the basis of the injunctive or declaratory relief,” as the 5th Circuit held in Allison v. Citgo Petroleum Corp.

But at the same time, the court strongly implied that allowing a non-opt-out class to pursue monetary relief violates due process.  So I wouldn’t expect to see any such classes certified anytime soon.  Nor are many plaintiffs likely to request it, as the Court made it as difficult to certify a (b)(2) class as a (b)(3) class, in concluding that (b)(2) applies only when “predominance and superiority are self-evident.”

Yet, again, this holding would seem to primarily impact class actions brought under Title VII and other civil rights statutes.  Plaintiffs in most other cases seek monetary relief and certification under Rule 23(b)(3).  Courts, after all, have rarely found that injunctive and declaratory relief predominated in a case where plaintiffs also sought monetary relief.  Outside of the civil rights context, at least.




Sometime around 2004, I heard that consumer class actions were dead. Why? Companies were inserting into consumer contracts mandatory arbitration clauses that waived the right to proceed as a class action. Courts were upholding them – arbitration clauses are, after all, pretty much inviolate – and surely every company would soon be using them. Fast forward seven years or so, and as April 27, 2011 at 9:00 AM, the consumer class action business was booming.

What happened? For one, state supreme courts, led by the California Supreme Court in Discover Bank v. Superior Court, started holding that class action waivers, at least in certain contexts, could be unconscionable and unenforceable. And federal courts of appeals, led by the 9th Circuit, began enforcing those state court holdings and precluding the enforcement of class action waivers. Section 2 of the Federal Arbitration Act (FAA) “preempts” state laws and rules that prohibit (whether directly or indirectly) enforcement of arbitration agreements. But arbitration agreements can be invalidated “upon such grounds as exist at law or in equity for the revocation of any contract.” Courts reasoned that Discover Bank rule was not preempted because it was based on unconscionability, a defense that is applicable to all contracts, so if a state would also invalidate a class action waiver if it was found in a non-arbitration contract, it could invalidate class waivers contained in arbitration clauses without being preempted.

Since 2005, the 9th Circuit has applied the Discover Bank rule in at least a dozen cases. The same principle was applied under Washington state law. The Eleventh Circuit invalidated class waivers under similar circumstances based on Florida and Georgia law. The 3rd Circuit had done the same based on New Jersey law. The 1st Circuit and 2nd Circuit had even held that class waivers were unenforceable in the arbitration context under the “federal common law” of arbitration.

Yesterday the U.S. Supreme Court quashed that line of reasoning in AT&T Mobility LLC v. Concepcion, No. 09-893, holding that the Discover Bank rule (and by extension, similar rules in other states) is preempted by FAA Section 2.

Although the rule invalidates class action waivers in non-arbitration contracts as well as in arbitration contracts, the Court reasoned, the rule disproportionately affects arbitration agreements. And its operative effect is much the same as a rule that bans arbitration, because companies would never agree to class arbitration.

Moreover, the Court explained, there is a fundamental disconnect between class adjudication, which is public, lengthy, and procedurally complex on the one hand, and arbitration, which is supposed to be private, quick, and laid-back, on the other.

A Few Observations:

  • The outcome, in my view, was all but inevitable. Last June, the Supreme Court held in Stolt-Nielsen S.A. v. Animalfeeds International that the FAA prohibits arbitrators from allowing class arbitration unless the parties signed an arbitration agreement that specifically allows it. In other words, under the FAA, arbitration clauses are assumed to disallow class arbitration. Under the Discover Bank Rule, arbitration clauses must allow class arbitration. So the holding in Concepcion may have been fore-ordained by the reasoning of Stolt-Nielsen.
  • The only real possibility of a different conclusion would have been if the Court had viewed the consumer adhesion contracts in Concepcion as fundamentally different from the commercial contracts in Animalfeeds. In law school they probably still teach the concept of adhesion contracts, and that courts are more hesitant to enforce them against the party in the weaker bargaining position. But that notion doesn’t carry the weight with courts these days that it used to, at least since Carnival Cruise Lines v. Shute. The majority made short shrift of the adhesion contract aspect of the case, so I’d expect that trend to continue.
  • The lawyers for the Respondents/Plaintiffs focused their briefs and oral argument on trying to win over Justice Thomas based on his federalism/states’ rights jurisprudence. Justice Thomas did disagree with the majority’s reasoning, and he wrote a concurrence stating that he had serious reservations joining the majority opinion. But not based on federalism. Instead, Justice Thomas wrote that the plain meaning of the language of Section 2 allows arbitration agreements to be invalidated only when there is a defect in making the agreement. In his view, other rules that can preclude enforcement of contracts generally simply don’t apply to arbitration agreements.
  •  There are many headlines today like “After At&T Ruling, Should We Say Goodbye to Consumer Class Actions?” (Ashby Jones, WSJ Law Blog). It feels like déjà vu all over again. But I don’t think the death of the consumer class action is coming any time soon. For one thing, many consumer class actions are brought by plaintiffs who have not signed any contracts with the defendant they’re suing, so they can’t have signed an arbitration agreement. Nor would I be surprised to hear that lawyers have come up with some new reason why class waivers can’t be enforced. And initiatives – legislative or otherwise – to undo the effect of this decision are sure to come. Indeed, Daniel Fisher reported yesterday that a legislative work-around may already be in place, at least regarding contracts under the Consumer Finance Protection Bureau’s jurisdiction.

In short, the outcome of Concepcion is not a huge surprise.  And while it may slow down consumer class actions for a while, it’s hardly their death knell. 


In Walmart Stores, Inc. v. Dukes, even more than in most cases, the U.S. Supreme Court stands at a crossroads.  Or to be more precise, in Dukes, the Court stands at several crossroads.  There’s little doubt that whichever path it chooses is going to have a big impact on some aspect of federal civil litigation.  The real question is:  Which one? 

Here’s why it’s so hard to figure out where Dukes is going.  The Court generally grants certiorari (i.e., agrees to hear an appeal), for one of a few reasons.  Most commonly, the Court hears cases to resolve conflicts among the different circuits of the courts of appeals about a legal issue.  The Court will occasionally hear a case that doesn’t involve circuit conflicts if it considers the case to be of great public importance (e.g., Bush v. Gore).  Very rarely, the Court takes cases when neither factor is present, but it wants to overrule its own prior precedent.  Only the justices and their clerks know what they wanted to do when agreed to hear Dukes, but it is a case that could fit into any of these categories.

Looking at the questions the Court granted certiorari to decide only adds to the confusion.  The Dukes litigation in the Ninth Circuit (first before a panel, then before the en banc court) focused on two issues.  First, there’d been a sea change in circuit precedent on plaintiffs’ burden of proof for class certification.  The 2nd, 3rd and 7th Circuits had recently abandoned the principle that a class should be certified so long as the plaintiff presents some evidence to support each of the requirements for certification under Rule 23(a) and (b), holding instead that a class should be certified only if the plaintiff puts on stronger evidence than the defendant comes up with.  The novelty of those decisions was that judges now have to resolve disputed fact issues at class certification that would normally be for a jury to resolve at trial.  That issue impacts every class action case, and Dukes was thought to be the 9th Circuit’s chance to weigh in on it.  

The second main issue impacts only a small number of class actions, primarily involving civil rights and/or employment discrimination.  The issue is:  In what circumstances can a class be certified under Rule 23(b)(2) — which is easier to meet than the more commonly used Rule 23(b)(3)?  

The en banc 9th Circuit declined to disagree with the decisions of other circuits on the first issue. It acknowledged slight tension with the 5th Circuit on the second issue, but adopted a nebulous “totality of the circumstances” test, making it harder to see a true circuit conflict even on that issue. 

In its certiorari petition, Walmart identified the Rule 23(b)(2) issue as the primary question for the Court to address, but included a second, broad catch-all issue, encompassing, among other issues, the 9th Circuit’s interpretation of the burden of proof.

The Court agreed to decide Walmart’s first issue but not its second one, so it appeared the Court wanted to decide this conflict issue. But the Court then added its own second question, which was broad and vague as to the precise issue it wanted to look at:  “whether the class certification ordered under Rule 23(b)(2) was consistent with Rule 23(a).”  It’s anyone’s guess what the Court meant by that, because Rule 23(a) contains 4 separate elements, and there are many different potential problems with proving each of them.  Was the Court’s focus on “the class certification ordered” in this particular case an indication that the Court viewed this case as one of great public importance?  The fact that hundreds of thousands of female employees were suing such a large company certainly makes the case newsworthy, but did that put it on the same footing as, say, Bush v. Gore?  Or was the Court alluding to the burden of proof issue, perhaps seeing a conflict?

Oral argument last week may have shed some light on where the Court is really going.  Having looked over the oral argument transcript, my guess is the Court is more interested in looking at whether to overrule its prior precedent.  As Lyle at SCOTUSBLOG, and press accounts have highlighted, the Court seemed most concerned with the “pattern or practice” (proving a pattern or practice required to for liability under the section of Title VII the plaintiffs sued under) the plaintiffs said they could prove on a common basis, even though the class members worked in different stores and had different managers.  They argued that Walmart’s pattern or practice was to give local hiring decision-makers’ “excessive subjectivity.”  In other words, Walmart would be responsible for discrimination by hiring decision-makers at the store level because it did not make managers use objective criteria in their decisions.  

Justice Kennedy, among others, didn’t seem enamored with that theory.  But as the plaintiffs pointed out, they didn’t invent it.  The Supreme Court did.  International Brotherhood of Teamsters v. United States was not a class action.  But the government (the plaintiff) in that case faced some of the same problems the Dukes plaintiffs faced:  How do you prove a that a large employer with many locations, and different individuals making hiring and promotion decisions at each location, subjected all affected employees to the same discriminatory pattern or practice? 

Perhaps based on the conviction that the need to root out corporate cultures that fostered unspoken gender biases outweighed other considerations, the Court in Teamsters endorsed the idea that plaintiffs can prove liability for all employees in their affected class by showing that the central office’s policy and practice of allowing local managers to use excessive subjectivity enabled biased decision-making, so long as they also prove that wide scale disparities exist throughout the company that can’t be explained by innocent factors.

The Dukes plaintiffs latched onto that theory, but unfortunately for them, the litigation is pending in 2011, not 1977 (when Teamsters was decided), and the Court’s outlook has changed quite a bit in the intervening 34 years. 

And at least some of the justices appear ready to put Teamsters to bed, or at least interpret it as having an extremely narrow application that doesn’t include the Dukes facts.  A decision to go in that direction would obviously be significant to Walmart and the members of the Dukes class.  And it would probably impact similar gender bias suits against large employers. 

Some, like Professor Kent Greenfield argue that overruling or marginalizing Teamsters could adversely affect workplace equality, but I’ll leave social and political analysis to others. 

Whatever its social import, a decision focused on the Teamsters theory could actually have a much smaller affect on federal court litigation as a whole.  Such a decision would impact a much  narrower class of cases than a decision on the burden of proof for class certification or the scope of cases that can be certified under Rule 23(b)(2).