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OT2011: A Look at Upcoming Business Litigation in the Supreme Court, Contributed by Thomas C. Goldstein, Goldstein & Russell, P.C.

Monday, October 24, 2011

In this Article, I describe the most important business-related cases currently before the Supreme Court. The Term has a few significant cases for the corporate community. The Justices will likely announce that they will decide the highest profile issue—the constitutionality of the health care reform legislation—next month.

Suing Corporations for Overseas Human Rights Violations

The most interesting business case of the Term thus far will address whether companies can be sued under the Alien Tort Statute (ATS) for human rights violations overseas. In Kiobel v. Royal Dutch Petroleum, No. 10-1491 (U.S. June 13, 2011), the plaintiffs (Nigerian nationals) allege that that the defendant oil companies assisted the Nigerian government in suppressing resistance to oil exploration in the country. (A parallel case that will be argued the same day,Mohamad v. Rajoub, No. 11-88 (U.S. July 20, 2011), will decide whether a political organization (in this case, the PLO) can be sued under the Torture Victim Protection Act.) The statute in Kiobel (the ATS) provides, "[t]he district courts shall have original jurisdiction of any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States." 28 U.S.C. § 1350. The Second Circuit held that the scope of liability under the statute is determined by customary international law. It concluded that the ATS does not extend to these plaintiffs' claims because corporations have never been held liable under customary international law for human rights violations. The plaintiffs successfully petitioned the Supreme Court to decide two questions: (1) whether the court of appeals erred in deciding the scope of the defendants' liability as a question of jurisdiction at the outset of the case; and (2) whether it in all events erred in holding that corporations are not subject to suit under the ATS. The outcome of the case is difficult to predict. Much will depend on the position taken by the U.S. Solicitor General, who has outsized influence in the Supreme Court. The Court could avoid deciding the question of corporate liability altogether if it ruled that the Second Circuit erred in considering the question at the jurisdictional stage. On the merits of that issue, the Court's conservative majority is generally suspicious of novel efforts to use the federal courts as policymaking tools, such as to combat human rights violations. Seven years ago, in Sosa v. Alvarez-Machain, 542 U.S. 692 (2004), the Court—which has since become still more conservative—adopted a narrowing construction of the ATS, holding that the statute's application requires "great caution." Yet the defendants' argument here—that corporations are categorically exempt from liability—does not immediately appear to track the statutory language or the reasons for its enactment. It is a case that is likely to be resolved on roughly ideological lines. The case has significant implications either way. For the human rights community, the ATS represents a potentially significant tool to bring corporations involved in violations of international law before courts, as many foreign court systems (including those in the third world) are closed or unreliable. On the other hand, the corporate community is understandably wary that the ATS could be turned into a tool of the plaintiffs' bar to launch extreme allegations related to overseas conduct and attempt to extract extortionate settlements. The Court granted certiorari on October 17, and the case will be argued in February 2012 and almost certainly decided in June.

The Scope of Patentable Subject Matter

The Court will return to the question of what inventions satisfy the basic requirements of patentability in Mayo Collaborative Services v. Prometheus Laboratories, Inc., No. 10-1150 (Mar. 21, 2011). Respondent Prometheus is the licensee of a party that patented a test that correlates the concentration of a drug in a patient's bloodstream with dosage of the drug. The Court of Appeals for the Federal Circuit held that the invention was patentable, reasoning that the invention was patent eligible because it was directed at a method for "transforming" a patient's blood chemistry. The Supreme Court granted certiorari. The relevant statute provides, "[w]hoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title." 35 U.S.C. § 101. In Bilski v. Kappos, 130 S. Ct. 3218 (2010), the Court recently reversed an en banc Federal Circuit ruling that an invention is patentable under this statute only if it is part of a machine or transforms something into another form. The Supreme Court's decision to grant certiorari in the Mayo case is unusual and signals that at least some of the Justices doubt the invention's patentability. The Court generally permits a decision like Bilski to percolate for at least a few years before returning to decide a similar question. But the patentability of inventions related to arguably natural phenomena—such as fairly basic blood tests—has interested members of the Court such as Justice Stephen G. Breyer for several years. The Solicitor General has filed a brief arguing that the invention constitutes patentable subject matter, but that the invention is likely invalid for other reasons—namely, that it is obvious and not novel. That is likely how the Court will resolve the case. The decision in Bilski refused to narrowly define the scope of the statute, and one of the Justices most hostile to patentability (Justice John Paul Stevens) has since retired. On the other hand, the Court by and large takes the view that there are too many patents and too much patent litigation, and the Justices are likely to have substantial doubts that an inventor can claim an exclusive right to measure the amount of a drug in a patient's bloodstream to decide how much more of the drug to administer. The significance of the case is indisputable. If the Court were to hold more broadly that this entire field of inventions was per se patent ineligible, it could call into question the patent portfolios of a wide away of companies in the biological and pharmaceutical fields. By contrast, a broad ruling that such inventions are not only patent eligible but affirmatively patentable (i.e., non-obvious and novel) could open the door to patent claims that would impose onerous licensing fees upon a significant number of ordinary medical procedures and similar activities. The Court is accordingly likely to take a middle ground. The Court granted certiorari on June 20, the case will be argued in December, and a decision is likely in the spring of 2012.

The Right to Contest Environmental Enforcement Actions

The scope of the EPA's authority to require environmental remediation without early involvement by the courts is at issue in Sackett v. Environmental Protection Agency, No. 10-1062 (Feb. 25, 2011). The EPA issued an administrative compliance order requiring the petitioners to cease construction of a home and remove fill material they had added, because the property allegedly constitutes wetlands subject to the Clean Water Act, 33 U.S.C. §§ 1251–1376. The petitioners sought to challenge the EPA's determination that the property is wetlands in court, but the Ninth Circuit held that federal law forbids such an action until after any environmental clean-up is concluded, and does so constitutionally. The Supreme Court's decision to consider whether there is a statutory right to challenge such an enforcement order prior to completion of any clean-up, and, if not, whether there is such a right under the Constitution's Due Process clause, suggests that several of the Justices are very doubtful of the EPA's position. The Court granted certiorari in the absence of a conflict in the courts of appeals. The property owners—who present a very sympathetic set of facts—also face a dilemma that a majority of the Court seems likely to find objectionable: they may secure judicial review of their claim that they are not required to conduct the clean-up only if they refuse to follow the EPA's order and risk the imposition of tens of thousands of dollars in daily fines. Similarly, the facts of the case suggest that this is not the kind of highly unusual situation that the Court has indicated is exempt from pre-enforcement judicial review. On the other hand, the government makes a substantial argument that there are many cases of genuine emergencies in which litigation would delay essential remediation and threaten significant environmental harms. The Justices seem likely to resolve these competing interests by permitting a property owner to go to court in some but not all cases, and permitting the EPA to show that environmental clean-up orders should not be placed on hold pending the outcome of judicial review. The case is significant for not only ordinary property owners like the Sacketts but also for medium and large corporations. Under the law as it now stands, the inability to seek initial judicial review gives the EPA massive leverage to compel companies to comply with unilateral administrative orders issued by the agency. GE, for example, is subject to such an order with respect to the clean-up of the Hudson River. If the petitioners prevail in Sackett, companies will have a significant tool to push back against expensive clean-up orders. The Court granted certiorari on June 28, the case will be argued in January 2012, and a decision is likely in May or June.

Statutes of Limitation for Short-Swing Securities Claims

In Credit Suisse Securities v. Simmonds, No. 10-1261 (U.S. Apr. 18, 2011), the Court will consider the statute of limitations for claims that a defendant engaged in a prohibited "short-swing" transaction. Section 16(a) of the 1933 Securities Act requires every corporate insider to disclose all purchases and sales of the corporation's securities. Section 16(b) provides that insiders must disgorge any profits from any short-swing transactions—i.e., a sale or purchase of the company's securities within six months of a prior purchase or sale, respectively. The latter provision is enforceable through a suit by the company or a shareholder, not the SEC. The statute provides that "no such suit may be brought more than two years after the date such profit was realized." This case arises from the collapse of the stock market bubble at the turn of the millennium. It is derived from earlier litigation against (among others) the underwriters of various initial public offerings. In this case, the plaintiffs allege that the underwriters were insiders subject to Section 16(b) and engaged in prohibited short-swing sales of the IPO securities. Although the plaintiffs filed their suit more than two years after the relevant sales, they contend that the statute of limitations was tolled by the fact that the underwriters were required to by Section 16(a) to disclose the sales but did not do so. According to the plaintiffs, the two-year limitations period does not begin to run until the seller makes the public disclosure of the transaction required by Congress. The defendants, by contrast, argue that the statute's limitations provision is clear and unambiguous and contains no provision for tolling. Applying its prior circuit precedent, the Ninth Circuit agreed with the plaintiffs. The Supreme Court seems likely to take the intermediate position suggested by the Solicitor General. According to the government, the statute of limitations is subject to tolling, but may begin to run prior to the disclosure of the sales under Section 16(a). On this view, what matters is whether the plaintiffs knew or should have known of the claim through any means, not merely that single form of disclosure. The case does not have sweeping implications. Section 16(b) of the 1934 Act has its own statute of limitations, so the Court's ruling will not govern actions under the securities laws generally. Nonetheless, the ruling could be cited in later cases as indicative of whether it is appropriate to toll limitations periods. The Court granted certiorari on June 27, the case will be argued on November 29, and a decision is likely in the spring.

Other Cases Worth Noting

The remaining business-related cases on the Court's docket are less significant and can be summarized briefly. Caraco Pharmaceutical Laboratories v. Novo Nordisk A/S, No. 10-844 (U.S. Dec. 28, 2010). The Court will rule on the scope of a generic drug manufacturer's right to sue to require a brand-name manufacturer to correct information submitted to the Food and Drug Administration. CompuCredit Corp. v. Greenwood, No. 10-948 (Jan. 25, 2011). The question in this case is whether claims under the Credit Repair Organizations Act are subject to arbitration. Douglas v. Independent Living of Southern California, No. 09-958 (Feb. 17, 2010). The Court will decide when a private party can bring suit alleging that a state law is preempted by federal law—either generally, or at least with respect to the statutes governing Medicaid reimbursement. FCC v. Fox, No. 10-1293 (U.S. Apr. 22, 2011). The question in this case is whether the FCC's regulation of "indecency" on broadcast television networks violates the First Amendment. Kappos v. Hyatt, No. 10-1219 (U.S. Apr. 7, 2011). This case concerns the procedural question of when a patent applicant can submit evidence to a court that it did not present to the Patent and Trademark Office. Minneci v. Pollard, No. 10-1104 (U.S. Mar. 10, 2011). The Court will decide whether employees of a government contractor—here, a private prison—may be sued directly under the Constitution. United States v. Home Concrete & Supply, LLC, No. 11-139 (U.S. Aug. 3, 2011). This case will address two issues. The narrower one is whether a six-year statute of limitations applies to the government's attempt to impose additional tax liability when the taxpayer inflates the basis for property it sells. The broader one is the degree of deference to which the courts owe to the IRS's interpretation of the tax laws. 

Thomas C. Goldstein, a partner at Goldstein & Russell, P.C., has argued 24 cases before the U.S. Supreme Court, including matters involving federal patent law, class action practice, labor and employment, and disability law. In addition to practicing law, Tom is the founder and publisher of SCOTUSblog. Tom teaches Supreme Court Litigation at both Stanford and Harvard Law Schools.   

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