Wrap Up of United States Supreme Court’s 2016-17 Term

With the close of the United States Supreme Court’s 2016-17 term, we offer this wrap up of the term’s most important business and commercial cases (excluding patent cases):

Kindred Nursing Ctrs, L.P. v. Clark: The Supreme Court continued its full-throated support of arbitration agreements, again rejecting a state supreme court’s effort to apply an ostensibly arbitration-neutral rule of law to invalidate an arbitration agreement. In Kindred, the Kentucky Supreme Court held that an arbitration agreement signed by an attorney-in-fact under a broad power of attorney was invalid because the power of attorney did not expressly give the attorney-in-fact the right to waive the principal’s right to a jury trial. According to the Kentucky Supreme Court, to grant an attorney-in-fact the authority to waive a “fundamental constitutional right,” a power of attorney must grant that authority expressly and unambiguously. Because the right to access the courts and the right to a jury trial are such “fundamental constitutional rights” and because the power of attorney did not expressly and unambiguously waive them, the attorney-in-fact was not authorized to agree to arbitrate the principal’s claims, and no enforceable arbitration agreement was created.

The Supreme Court found that the Kentucky Supreme Court’s facially arbitration-neutral rule—that the authority to waive “fundamental constitutional rights” must be expressed unambiguously in a power of attorney—in fact disfavored arbitration agreements and failed to treat them the same as other contracts. The Supreme Court noted that no other decision in Kentucky had imposed the same requirement for other types of agreements. For instance, nothing in Kentucky case law suggests that a power of attorney must expressly and unambiguously grant the attorney-in-fact the authority to sell her principal’s furniture even though the “right to acquire and protect property” is enshrined in the Kentucky constitution. Because the Kentucky Supreme Court’s newly announced rule showed a “hostility to arbitration,” the Supreme Court rejected the rule and enforced the arbitration agreement.

BNSF Ry. Co. v. Tyrrell and Bristol-Myers Squibb Co. v. Superior Court of Cal.: The Supreme Court continued its development of personal jurisdiction law with two more decisions. In Tyrrell, the Court addressed general or “all-purpose” jurisdiction, reaffirming the notion that only in the rarest and most extraordinary circumstances will a corporate defendant be subject to general jurisdiction outside the states where it is headquartered or incorporated. It concluded that a railway was not “at home” in—and therefore not subject to the general jurisdiction of—the courts of Montana even though the railroad maintained more than 2,000 miles of track and employed more than 2,000 people in the state.

In Bristol-Myers, the Supreme Court addressed specific or “case-linked” jurisdiction, which permits a state to exercise jurisdiction over a defendant only if the cause of action arises out of the defendant’s forum contacts. The Court rejected the California Supreme Court’s “sliding scale approach to specific jurisdiction,” pursuant to which “the more wide ranging the defendant’s forum contacts, the more readily is shown a connection between the forum contacts and the claim,” holding that the degree of connection between the action and the defendant’s forum contacts does not vary by the extent of the defendant’s forum contacts. The Court ultimately held that California courts could not exercise specific jurisdiction over claims by nonresident plaintiffs against a nonresident defendant when the only connection between California and the nonresident defendants is that California residents were harmed by conduct similar to that which harmed the nonresident plaintiffs.

Microsoft Corp. v. Baker: When a class certification motion has been denied and a Rule 23(f) request for interlocutory leave to appeal the denial has been denied, plaintiff’s counsel often finds itself in a difficult position. It must prosecute a single plaintiff case of very little value through trial, thus investing far more in the case than it is worth, before the denial of class certification can be considered by a Court of Appeals. Plaintiff’s counsel on the losing end of a class certification motion occasionally sought to avoid this predicament by stipulating to the dismissal with prejudice of the complaint—thus obtaining an ostensibly appealable final judgment—but reserving the right to revive the claims if the denial of class certification is later reversed. In Baker, the Supreme Court put a stop to this practice, concluding that a voluntary dismissal for the purpose of seeking review of a denial of class certification is not a final decision under 28 U.S.C. §1291. A contrary rule, according to the Court, would result in inefficient piecemeal litigation and would undermine Rule 23(f)’s “careful calibration” of the opposing interests and concerns relating to appellate review of class certification decisions.

Cal. Pub. Emps. Ret. Sys. v. ANZ Secs., Inc.: The Securities Act of 1933 sets forth two deadlines for lawsuits by purchasers of securities for false or misleading registration statements. One deadline states that no action can be filed more than one year from “the discovery of the untrue statement or omission or after such discovery should have been made.” The second deadline states that “[i]n no event shall any such action be brought . . . more than three years after the security was bona fide offered to the public.” CalPERS filed a lawsuit under the ’33 Act more than three years after the challenged public offering, but CalPERS was also a putative class member in a timely-filed putative class action challenging the same public offering. The class action settled, and CalPERS opted out. Was CalPERS precluded by the three-year deadline from pursuing its individual claim or was that deadline tolled by the pendency of the class action?

The Supreme Court held that CalPERS could not prosecute the case because the three-year deadline was not tolled by the class action. Unlike the one-year deadline, the three-year deadline is a statute of repose, not a statute of limitations, and its purpose is to give a defendant absolute certainty that it will not be called on to defend claims after a certain date. Allowing statutes of repose to be subject to equitable tolling would frustrate that purpose. Thus, statutes of repose may not be tolled for equitable reasons; instead they may be tolled “only where there is a particular indication that the legislature did not intend the statute to provide complete repose but instead anticipated the extension of the statutory period under certain circumstances.” Because the ’33 Act contains no indication that the three-year deadline is to be extended under certain circumstances, it was not tolled by the pendency of the class action.

Expressions Hair Design v. Schneiderman: A New York statute prohibits merchants from applying a “surcharge” on purchases made by a credit card. The statute thus clearly prohibits a merchant from posting a single price for a product and then charging credit customers an additional charge at the time of payment, but it arguably permits a merchant to post two prices for a product, a cash price and a credit price. Does the statute avoid First Amendment scrutiny by regulating the merchants’ conduct, or does it invite such scrutiny by regulating the merchants’ speech? In Schneiderman, the Supreme Court held that the statute regulates speech and thus must satisfy the requirements of the First Amendment relating to business speech. The Supreme Court did not decide whether the statute met those requirements, choosing instead to remand to the Court of Appeals for consideration of that issue.

Goodyear Tire & Rubber Co. v. Haeger: In Goodyear, the Supreme Court held that when a court uses its inherent authority to sanction a litigant for litigation misconduct by ordering the litigant to pay the adverse party’s fees, the award must be limited to the fees incurred by the adverse party as a result of the litigant’s misconduct. The district court found that Goodyear had made a dishonest discovery response early in the litigation and required Goodyear to pay all fees incurred by the plaintiff after Goodyear made the dishonest disclosure. Because relief granted under a court’s inherent authority may only be compensatory and cannot be punitive, the Supreme Court held that an award of fees under a court’s inherent authority must be limited to the fees that are causally related to the litigation misconduct, that is, the fees that would not have been incurred but for the litigation misconduct.

State Farm Fire & Casualty Co. v. United States: The False Claims Act requires a relator filing a qui tam action to file the complaint in camera, and the complaint must remain under seal for at least 60 days. What happens if the relator violates the seal requirement by disclosing the existence of the complaint to the press before the seal is lifted? Must the complaint be dismissed? In State Farm, the Supreme Court held that dismissal is not necessarily required for a breach of the seal requirement. Instead, whether dismissal or some lesser sanction should be given is within the discretion of the trial court.

Henson v. Santander Consumer USA Inc.: The Fair Debt Collection Practices Act creates potential liability for “debt collectors” engaging in certain proscribed collection practices. The statute defines “debt collector” to include one “who regularly collects or attempts to collect . . . debts owed or due . . . another.” The question in Henson was whether one who acquires debt from another party and then attempts to collect on its newly acquired debt is a “debt collector” for purposes of the statute because the debt originally was owed to another party. In an opinion analyzing the function and use of past participles, the meaning of the word “owed,” and the text and structure of the FDCPA, the Supreme Court held that a party that attempts to collect a debt that it acquired from another party is not a “debt collector” under the FDCPA. The same result holds, under the Court’s opinion, if the collecting party acquired the debt after the obligor had defaulted on it.

Water Splash, Inc. v. Menon: Resolving a circuit split, the Supreme Court in Water Splash held that section 10(a) of the Hague Service Convention permits service of process by mail, so long as the country where the defendant is located has not objected to service by mail and service by mail is allowed under the law of the forum state.

Christopher Walsh is a Director in the Gibbons Business & Commercial Litigation Department.