Supreme Court to Weigh Slate of Hefty Business Cases

When the U.S. Supreme Court officially kicks off its new term later this month, Corporate America will be watching closely.

The Court will rule on a several cases that could have big implications for companies, including decisions on class-action certification standards, securities fraud, corporate liability in the United States for events that occurred abroad, and others.

Apart from the healthcare ruling, last term was a mostly uneventful one for issues of interest to the business community, says Andy Pincus, a partner with law firm Mayer Brown. This term, he says, “we can expect some very significant rulings.”

Below is Compliance Week's list of the most important corporate litigation matters on the Supreme Court's docket this term, and what to expect.

Kiobel v. Royal Dutch Petroleum. In its first hearing of the new term, the Supreme Court will again decide whether foreign plaintiffs can bring cases in the United States against companies over actions that occur abroad under the Alien Tort Statute. Kiobel first appeared before the Supreme Court in February for oral arguments. In an unusual move, however, the Court ordered re-argument to address the question of whether the ATS applies outside the United States at all. The case stems from a lawsuit filed by the families of seven Nigerians over accusations that Royal Dutch Petroleum aided the Nigerian government in violently suppressing protests against oil exploration in the area. Since virtually every claim brought under the ATS has involved misconduct that has occurred overseas, “if the Court says that the statute doesn't apply extra-territorially, that's basically going to eliminate a source of litigation burden for companies,” says Pincus. Arguments were heard Oct. 1.

Standard Fire Insurance Co. v. Knowles.  This case will address the question of whether a lead plaintiff can place a cap of under $5 million on the recovery of class members in order to keep the case in “plaintiff-friendly” state courts. Under the Class Action Fairness Act, claims seeking $5 million or more must be moved to federal court. Plaintiff Greg Knowles filed the original lawsuit as a class action in April 2011 alleging that Standard Fire failed to fully reimburse homeowners for losses sustained to property. Pro-business groups argue that placing a cap on the monetary recovery of class members encourages absent class members to file additional lawsuits seeking recovery. “It threatens the finality of otherwise concluded class-action litigation and undermines incentives for voluntary resolution,” the U.S. Chamber of Commerce wrote in a friend-of-the-court brief.

Kirtsaeng v. John Wiley & Sons. The question raised in this case is how much freedom sellers in secondary markets have to choose the markets they want to enter and hinges on whether the first-sale doctrine applies to goods made outside the United States. Under the first-sale doctrine, once a copyright owner legally sells or transfers ownership of a copyright product, the buyer may dispose of the product as he sees fit. In Kirtsaeng, the Second Circuit held a student liable for violating copyright laws by selling Asian versions of John Wiley textbooks on eBay in the United States. In a friend-of-the-court brief, technology giants, including eBay and Google, argued that a victory by John Wiley & Sons would mean that any company can dictate whether and how its goods can be sold simply by making them overseas. “Exempting foreign consumer goods from the first sale doctrine could unsustainably burden secondary markets. It is impossible for secondary market participants to identify each alleged copyrighted work and make a determination regarding its legal status. Moreover, secondary market participants lack means to determine where the goods were manufactured.” Arguments will be heard Oct. 29.

Each class-action ruling in Comcast, Amgen, and Genesis Healthcare “could be very significant in terms of clarifying some uncertainty about the rules governing class actions, and when they're available.”

—Andy Pincus,

Partner,

Mayer Brown

Comcast v. Behrend. This case will attempt to answer the question of whether a court may certify a lawsuit as a class action without resolving whether the plaintiffs have admissible evidence for proving damages on a class-wide basis. The anti-trust dispute stems from allegations that Comcast intended to raise prices in its Philadelphia market by buying out competitors. Despite Comcast's argument that some plaintiffs could not have suffered injury, the Third Circuit certified the class anyway. “There's been a tendency in some cases for courts to give less attention to the issue of damages at the class certification stage of the litigation,” says Steve Bradbury, an antitrust and securities litigation partner with Dechert. “This case will clarify how much scrutiny damages theories must get before a class may be certified, and that's why it's so important,” says Bradbury. Arguments will be heard Nov. 5.

Amgen v. Connecticut Retirement Plans and Trust Funds.  The question here is whether plaintiffs in a securities fraud class action must prove that a company's mis-statements were material in order to obtain class certification. The lawsuit accused biotech company Amgen of off-label, unapproved marketing of its anemia-treating drugs Aranesp and Epogen. Amgen argued that there was no proof to establish that the alleged misrepresentations had a material effect on its stock price. The Ninth Circuit held that plaintiffs don't need to prove materiality at the class certification stage. Instead, they can rely on the fraud-on-the-market theory, which assumes that public misstatements adversely affect overall market prices and, thus, cause losses to all investors, no matter whether they individually relied on the mis-statements. “Fraud-on-the-market theory has facilitated class certification in securities fraud suits and made it relatively easy in many of these cases for plaintiffs to get class certified,” says Bradbury. “The Amgen case is an opportunity for the Supreme Court to revisit the fraud-on-the-market theory and to spell out precisely what plaintiffs must show to rely on this theory at the class certification stage. If plaintiffs must show materiality, it will make it harder to get class certified.”

COURT DECISION: KIOBEL

The excerpt below from Kiobel v. Royal Dutch Petroleum explains the U.S. Court of Appeals' decision in the Kiobel case.

Plaintiffs assert claims for aiding and abetting violations of the law of nations against defendants—all of which are corporations—under the Alien Tort Statute (“ATS”), 28 U.S.C. § 1350, a statute enacted by the first Congress as part of the Judiciary Act of 1789. We hold, under the precedents of the Supreme Court and our own Court over the past three decades, that in ATS suits alleging violations of customary international law, the scope of liability—who is liable for what—is determined by customary international law itself. Because customary international law consists of only those norms that are specific, universal, and obligatory in the relations of States inter se, and because no corporation has ever been subject to any form of liability (whether civil or criminal) under the customary international law of human rights, we hold that corporate liability is not a discernable—much less universally recognized—norm of customary international law that we may apply pursuant to the ATS. Accordingly, plaintiffs' ATS claims must be dismissed for lack of subject matter jurisdiction.

The order of the United States District Court for the Southern District of New York (Kimba M. Wood, Judge) is AFFIRMED insofar as it dismissed plaintiffs' claims against the corporate defendants and REVERSED insofar as it declined to dismiss plaintiffs' claims against the corporate defendants.

Judge Leval concurs only in the judgment of the Court dismissing the complaint and files a separate opinion.

Source: Kiobel v. Royal Dutch.

“Requiring only allegations of materiality at class certification would substantially hinder a defendant's ability to dispute non-meritorious claims before being subjected to overwhelming settlement pressure,” the Securities Industry and Financial Markets Association wrote in a friend-of-the-court brief. “A rigorous analysis of materiality—an antecedent of the judicially created fraud-on-the-market doctrine—at class certification allows district courts to efficiently and fairly manage cases that are not suitable for class treatment.” Arguments will be heard Nov. 5.

Genesis Healthcare v. Symczyk. The question here is whether a company facing a potential class action may end the litigation against it by offering to settle with the lead plaintiff. In this case, the plaintiff filed a lawsuit on behalf of a class of employees who claimed they were denied adequate break time in violation of the Fair Labor Standards Act (FLSA). Prior to the class formation, Genesis Healthcare offered the lead plaintiff full payment on her claims ($7,500 plus attorneys' fees). The plaintiffs' lawyer in the case, however, objected to the company's attempt to “pick off” the named plaintiff before the court could consider class certification. The Eleventh Circuit agreed, ruling that judges are within reason to assume a class action can survive even where the lead plaintiff theoretically no longer has a claim.

Recent analysis from law firm Seyfarth Shaw finds that federal wage and hour lawsuits continue to skyrocket. According to the study, a record 7,064 FLSA lawsuits were filed in federal court during the most recently reported 12-month period ending in March. “The release of the 2012 data reinforces the fact that these FLSA claims are still gaining momentum, and that they continue to be a major, growing threat to U.S. employers,” says Richard Alfred, chair of Seyfarth's Wage & Hour litigation practice. Given the increase in FLSA claims, a lower standard for class certification in Genesis Healthcare could increase the number of meritless claims against corporate defendants. The trial date has yet to be determined.

Each class-action ruling in Comcast, Amgen, and Genesis Healthcare “could be very significant in terms of clarifying some uncertainty about the rules governing class actions, and when they're available,” says Pincus. Stay tuned for coverage of the outcomes and what the decisions mean for legal and compliance functions.