September 2007
In October Term 2006, the Supreme Court showed an increased willingness to review and decide business litigation cases that the Rehnquist Court had largely avoided. The justices made important decisions in the areas of securities law, antitrust, patent law, civil procedure, employment law, and punitive damages. In the upcoming October Term 2007, the Court is set to review several other cases that will result in landmark rulings on critical questions of business law and litigation reform.
At this annual AEI Legal Center Supreme Court Briefing, panelists analyzed the business-related cases from October Term 2006 and the upcoming October Term 2007. Joining AEI scholars Michael S. Greve and Theodore H. Frank in the discussion were former deputy solicitor general Maureen Mahoney, now head of the Latham & Watkins appellate and constitutional practice groups, and former general counsel at the Clinton administration Commerce Department Andrew J. Pincus, currently a partner at Mayer Brown. Peter J. Wallison, the Arthur F. Burns Fellow in Financial Policy Studies at AEI, moderated.
Michael S. Greve
AEI
At least twenty of seventy-two Supreme Court cases in the 2005 term and twenty-five of sixty-seven cases in the 2006 term addressed business issues. There are several reasons why the Supreme Court could be accepting so many business cases. It could just be the normal ebb and flow of cert petitions and cert grants, although this is unlikely. Chief Justice John Roberts was a business lawyer, and the chief justice can set an agenda, but that does not explain why the entire Court embraces this agenda. Trial lawyers may have gotten out of hand, and the Court has recognized that the civil justice system is in disrepair, but this has been true for the last two or more decades. The business docket appeals to the justices in different ways and for different reasons, so they all agree to it.
The Supreme Court is trying to remedy the worst excesses of the trial bar, the worst miscarriages of justice, and the worst institutional failures of the Federal Circuit. But the Court and outside constituencies need to think more carefully about the direction of the business agenda for two reasons. First, agendas without clear direction tend to collapse, just like the federalism agenda did. Lawyers must start thinking about strategies. Second, the Court needs to keep the irrelevant cases off of the docket, to signal which cases are really important and to provide a coherent framework of analysis.
Maureen Mahoney
Latham & Watkins
There were two civil rights cases that stood out last term, one of which was also a business case. Civil rights damage cases affect business because employment discrimination suits are a major threat to business.
Business tends to have a strong interest in affirmative action because of the threat of class action lawsuits stemming from the use of affirmative action in their hiring, retention, and promotion programs. To uphold these programs, the Court would have to expand tolerance for affirmative action programs under the Equal Protection Clause. The Roberts Court is not inclined to do that.
The Court took several civil rights cases this term that present business and cost control issues. One case, Cracker Barrel v. Humphries, involves a retaliation claim under Section 1981, addressing differential treatment based on race in contractual relations. The Court will construe Section 1981 and whether it covers retaliation claims. The other retaliation case, Gomez-Perez v. Potter, involves the Federal Sector Age Discrimination Act and whether retaliation is part of the remedy already provided. Sprint/United v. Mendelsohn asks when a plaintiff can use other employees who were subject to discrimination by the same company to prove a discrimination claim. This evidence drives up the cost of discovery and hinders summary judgment, so this case could bring down the cost of defending these cases and make companies less willing to settle.
Andrew Pincus
Mayer Brown
During every term in the recent past, there has been a blockbuster intellectual property case. This term, Quanta addresses the Federal Circuit's computer component exemption to the first-sale exhaustion doctrine in relation to Congress' intentions. The solicitor general has filed an amicus brief saying that the Federal Circuit is wrong, and there will be another correction.
There is a big patent reform debate now in Congress that has impacted the courts. There is a question about achieving the right balance, especially in private litigation, between protections for patent owners and defendants. In Seagate, the Federal Circuit looked at willful infringement standards that were tilted in favor of plaintiffs and moved in the direction of the proposed patent legislation, reforming the willfulness standard and procedures for asserting willfulness.
Arbitration has grown substantially in all segments of the economy. While there are many benefits to arbitration, many contracts have substantial procedural limitations devised by arbitral forums. The cases before the Court deal with two interesting issues: a contract for a judicial review standard tougher than the one prescribed by Congress and the Federal Arbitration Act, and preemption in relation to the Federal Arbitration Act and a California statute. There are many arbitration questions in the lower courts that may come before the Supreme Court later in the term, such as whether consumers can waive their right to participate in a class action during an arbitration agreement.
Theodore H. Frank
AEI
The most important case of this term was Bell Atlantic v. Twombly, an antitrust case decided 7-2. The case overturned Conley v. Gibson, which allowed plaintiffs to make an allegation and then search for proof in discovery. Twombly therefore requires a greater standard of plausibility before a complaint could go forward. This is going to do a lot to shut down meritless litigation at an earlier stage.
There are not going to be any great advances for the business community in the three pharmaceutical preemption cases coming before the Supreme Court. The business community needs to win all three. Riegel v. Medtronic questions whether a company can sue under state law for design flaws that the FDA has approved and cannot be altered without further FDA approval. Wyeth v. Levine, which has not been granted cert yet, is similar. In this case, the state court is creating liability for a manufacturer who followed FDA rules. Warner-Lambert v. Kent involves the application of Buckman, which held that a state court cannot second-guess the FDA's determination of whether there has been fraud on the part of the FDA.
AEI research assistant Sara Wexler prepared this summary.
