Partners in the Supreme Court practices of US law firms pick the most important commercial cases heard in 2013 and plot the court’s course over the next 12 months.
Amir Tayrani, a partner in the Washington, DC office of Los Angeles-headquartered Gibson, Dunn & Crutcher, says that in Standard Fire Co v Knowles, the court in March held that a class action should be heard in a federal court, even though the class was seeking less than the threshold amount for federal jurisdiction.
He explains: “There appears to be a concern shared to varying degrees by all members of the court that the class action procedure has been abused by plaintiffs’ lawyers – at the expense of both class members and class action defendants – to secure windfall settlements that primarily benefit class counsel and that bear no relation to whether the class claims are actually meritorious.”
The court also showed a desire to clamp down on joining claims in a single case unless class-wide damage could be proved. Tayrani highlights the case of Comcast Corp v Behrend, where it ruled in March that two million subscribers to Comcast’s television service could not pursue an antitrust class action “because they could not prove damages on a class-wide basis”.
Ben Cooper from the Phoenix office of Steptoe & Johnson elaborates, saying that “to be a class action it really does have to be a class action and not an aggregation of individual claims”. He adds: “There’s almost a hobby of painting the Supreme Court in broad brush terms, characterising it as either pro-business or anti-business, based on these decisions.” Rather, the debate should be about “returning to the original conception of what is a class action”.
Cooper highlights a case in favour of class actions, Oxford Health Plans v Sutter, in which the court in June upheld an interpretation of an agreement allowing class-wide arbitration where the agreement did not specifically provide for it, but the arbitrator had been granted power to decide.
Not being individually able to afford to bring a case “is not a sufficient reason for overriding the arbitration agreement that the parties consented to”, explains Aaron Streett, a Supreme Court specialist at Baker Botts in Houston. “The court has continuously said that it will enforce arbitration agreements to the letter,” he says. “There is a strong federal policy in favour of arbitration, even if it makes life difficult for one of the parties. The court is going to hold the parties to their bargain.”
Dancing in the Streett
The court will soon hear Erica P John Fund v Halliburton, what Jon Cohn of Sidley Austin in Washington, DC says is possibly “the most significant securities case in decades”. It challenges the presumption, from 1988’s Basic v Levinson, that all class members in a federal securities action relied on the allegedly fraudulent securities information by purchasing their shares at a market price which was affected by misrepresentations.
Halliburton, represented by Streett, argues that this presumption of reliance is “in significant tension” with the decisions in Comcast and 2009’s Wal-Mart v Dukes, which held that plaintiffs have to prove their common issues.
If successful, it would severely limit the ability of investors to launch securities class actions. “Each individual investor would have to prove that he or she actually read the misrepresentation and relied on it,” says Streett, and “a lot of class actions that are certified now would not be certified”. Cohn agrees that some class members never even hear about the misrepresentation.
Tayrani similarly says it would become “substantially more difficult” to certify securities class actions, while critics claim that plaintiffs will find it harder to exercise their rights if Streett emerges victorious. He points to the ruling in American Express in which the court held that many federal statutes pre-date class action procedures, so access to a class is not considered essential to exercising those rights.
Chris Handman, a partner at Hogan Lovells in Washington, DC who specialises in appellate and Supreme Court litigation, highlights another key case heard by the bench this year: the liability of corporations for human rights violations overseas.
In Kiobel v Royal Dutch Petroleum, the court in April 2013 considered the scope of the Alien Tort Statute, which has been used to sue businesses in the US corporations for overseas international law violations. Often these cases involved “nothing more than doing business in a region where it was known that human rights violations were taking place”, Handman says.
The court in Kiobel ruled the Act did not apply extra-territorially, precluding “foreign cubed cases” where a foreign plaintiff sues a foreign defendant over foreign events. “Those simply are too far afield, and Congress never wanted to reach them,” he explains.
“US courts have no business adjudicating grievances brought by foreign plaintiffs involving foreign conduct by foreign companies,” he adds, although it remains to be seen whether the ruling will affect US companies abroad.
A similar question will be decided in Daimler v Bauman. In that case, in which the court is expected to issue a judgment by June, it will consider whether the existence of an American subsidiary requires a foreign parent corporation to litigate in the US.
“The decision is going to be critical for companies in trying to determine where they can be subject to jurisdiction when it’s not even their own conduct,” says Steptoe’s Cooper.