February 17, 2020

February 17, 2020

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February 14, 2020

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Supreme Court Update: Apple, Inc. v. Pepper (No. 17-204), Franchise Tax Board of California v. Hyatt (No. 17-1299), Cochise Consultancy, Inc. v. United States ex rel. Billy Joe Hunt (No. 18-315)

Greetings, Court Fans!

The Nine handed down three more decisions this morning, which we’ll have summarized for you in due course, but this Update will cover last week’s news, John Oliver style. There were also three decisions last week, including a significant antitrust defeat for Apple and a decision overruling a somewhat obscure precedent, which had the dissenters worrying about far less obscure precedents. Plus, more sniping over capital punishment!

Now then, our top case last week is Apple, Inc. v. Pepper (No. 17-204), which may well prove to be the most consequential business-related decision of the term. At issue was whether users of Apple iPhones have standing to bring federal antitrust claims against Apple over its pricing strategy for iPhone apps sold through the App Store. By a 5-4 vote, the Court concluded that they did. Besides the result, much has been made of the lineup, with Justice Kavanaugh penning a majority decision joined by the Court’s four liberal justices, over a dissent by Justice Gorsuch joined by the remaining conservatives. 

The facts are straightforward. A group of iPhone users sued Apple, alleging that it violates federal antitrust laws by requiring them to buy apps from Apple’s App Store at inflated prices. Apple prohibits the sale or distribution of apps outside the App Store, and the consumers argued that Apple was unlawfully using its monopoly over the distribution of apps to charge above-market prices. Apple countered that the users lacked standing, because Apple only sells apps at the prices set by the app developers and then collects a thirty percent commission for each sale. Since this commission is paid by the app developers, not iPhone users, Apple argued that the users lacked antitrust standing under Illinois Brick Co. v. Illinois (1977). The district court agreed with Apple and dismissed the case, holding that under Illinois Brick, only those who directly pay the allegedly inflated prices (the developers) have standing. But the Ninth Circuit read Illinois Brick differently and reversed, holding that the consumers had standing because they purchased the apps directly from Apple.

The Court affirmed the Ninth Circuit(!). Writing for four more liberal justices, Justice Kavanaugh began with Section 4 of the Clayton Act, which broadly permits “any person” to bring suit for an antitrust injury, a term that “readily covers” consumers who purchase apps for inflated prices from an alleged monopolist. This result is further supported by Illinois Brick, which “established a bright-line rule that authorizes suits by direct purchasers but bars suits by indirect purchasers.” Kavanaugh insisted that the meaning of the Illinois Brick rule is informed by the facts of that case: Illinois Brick sold blocks to masonry contractors, who sold them to general contractors, who sold their services to the State of Illinois. Illinois sued, alleging that it was harmed because Illinois Brick had conspired to fix the prices for the blocks, but the Supreme Court held it lacked standing, because Illinois had not purchased the blocks directly from Illinois Brick, but instead from intermediaries. Only these intermediaries—the parties who had purchased the blocks directly—had standing to sue. Applying Illinois Brick here, the majority found that the plaintiffs had standing, because they had purchased their apps directly from Apple, with no intermediary between them. On their interpretation of Illinois Brick, the absence of any intermediary between the alleged monopolist and the plaintiffs was dispositive.

Apart from a literal reading of precedent, this result was also supported by the logic and policy behind it. According to Justice Kavanaugh, Illinois Brick barred suits by indirect purchasers largely because they raised complicated damages issues, risked duplicative claims, and were simply less-effective ways of enforcing the antitrust laws than suits by direct purchasers. In the majority’s view, these concerns were absent here: Who better to sue Apple than the consumers who purchased the apps directly from it?

Justice Gorsuch, joined by the Chief Justice and Justices Thomas and Alito, dissented. They read Illinois Brick differently, agreeing with the district court that the key fact was not whether the plaintiffs bought the goods directly from the alleged monopolist. Instead, the key fact was whether the plaintiffs directly paid the allegedly inflated price. On their reading, what Illinois Brick prohibited was arguments that the plaintiff was harmed because an allegedly inflated price paid by others was ultimately passed on to the plaintiff through intermediaries. And that was just what the plaintiffs were alleging here: The allegedly inflated price was the thirty percent commission Apple charged on the sale of apps. That price was paid by the developers directly, and it only harmed consumers to the extent the developers passed that inflated price on to them by charging more for the apps in the first place. While the plaintiffs may have been direct purchasers from Apple, their injury was only indirect. This claim of indirect injury is precisely what Illinois Brick was supposed to prevent.

Time will tell how consequential Pepper will ultimately be for the law of antitrust standing. But given the increasing prevalence of companies like Apple that control distribution of goods and services directly to consumers, it is likely to make it easier for plaintiffs to challenge pricing strategies that may have previously been more insulated from antitrust scrutiny.

Next up is Franchise Tax Board of California v. Hyatt (No. 17-1299), in which the Supreme Court overruled Nevada v. Hall (1979) to hold that the Constitution prohibits states from being sued in the courts of another state without their consent. The decision itself will probably have few consequences, since the type of suit it precludes is exceedingly rare. But the case has received a lot of attention for what it says about the Justices’ views on constitutional interpretation and on stare decisis.

Before we get to that, some background: Hyatt, a one-time California resident, earned millions of dollars in royalties from a computer patent. But by the time the royalties started rolling in, he claimed to be a permanent resident of Nevada, a state that has no state income tax. California’s Franchise Tax Board (the state agency that collects personal income taxes) suspected his purported move was a sham, so it investigated. In 1998, Hyatt sued the Board in Nevada state court, alleging that the Board had committed various torts (like revealing his personal information) in the course of its investigation. After nineteen years of proceedings, including two trips to the U.S. Supreme Court, Hyatt eventually won a verdict of $50,000 against the Board. The Board then petitioned for certiorari, arguing that the suit should have been barred at the outset based on sovereign immunity.

Justice Gorsuch, joined by the four other conservative justices, agreed with the Board. He began with Nevada v. Hall, the 1979 decision holding that nothing in the Constitution required states to extend sovereign immunity to their peers in their own courts. Hall had noted that no express provision of the Constitution even arguably required states to give other states sovereign immunity. Instead, Hall concluded that states’ sovereign immunity in the courts of other states was regulated only by principles of comity.

The majority concluded that this understanding was at odds with the overall constitutional design, under which states retained an inherent, common-law sovereign immunity. The founder therefore took it as a given that states could not be sued in other states’ courts without their consent and thus found it unnecessary to expressly codify this form of immunity in the Constitution. While the states gave up some of this sovereign immunity relative to the federal government by ratifying the Constitution, nothing in the constitutional design entailed them surrendering their sovereign immunity to suits brought against them in other states’ courts. Justice Gorsuch criticized Hall’s focus on the absence of an express provision establishing immunity as a form of “ahistorical literalism” the Court had long rejected in other cases involving states’ sovereign immunity.

What then of stare decisis? According to the majority, it is never an “inexorable command,” and its pull is weakest when the Court is interpreting the Constitution, rather than something that can easily be amended, like a statute. What’s more, the Court concluded that Hall was poorly reasoned, inconsistent with related caselaw, and at odds with subsequent developments in the law of state sovereign immunity. And while a handful of people may have relied on Hall as settled law—say maybe Hyatt, who invested twenty years of legal fees into a suit against the Board in Nevada state court—this was not a context where the reliance interest in preserving Hall was strong.

Justice Breyer dissented, joined by Justices Ginsburg, Sotomayor, and Kagan. He began by defending Hall as rightly decided. Contrary the majority, at the time of the founding, no nation (and hence no state) was entitled to sovereign immunity in the courts of another as a matter of right. Instead, immunity was a matter of grace and comity, with nations free to grant or deny it (subject, of course, to the risk that their peers may reciprocate). Reading the Constitution to require states to extend sovereign immunity to other states in their own courts would therefore abridge their pre-existing right to determine the scope of foreign sovereigns’ immunity for themselves, and if the founders intended that result, one would have expected them to say so. And apart from whether Hall was right, it was stare decisis: Nothing had changed in the law generally to merit overruling Hall, nor has it proven impracticable. Indeed, suits against states in other states’ courts are rare, providing little reason to think that grace and comity cannot adequately manage whatever interstate conflict is risked through such suits.

Most of the scholarly and media attention on Hyatt has focused on two points. First, the Court’s conservative Justices decided the case based on principles they viewed as implied from the overall constitutional design, principles that are not explicitly codified anywhere in the Constitution. In some respects, this reflects a trend in originalist circles away from strict textualist approaches and toward other sources of meaning, like founding-era common law. But this has prompted more than a few wags to make jokes about penumbras and emanations not being so bad.  

Second, and getting most of the media attention, is what the case says about stare decisis. And those issues seem all the more relevant with several states enacting restrictive abortion laws intended to directly challenge Roe v. Wade and Casey v. Planned Parenthood. Justice Breyer only furthered these comparisons, ending his dissent with direct citations to Casey on the importance of stare decisis. But in our view, some of this commentary is a bit overstated. This is not the first decision of the term to overrule a prior case, and most bettors would tell you it won’t be the last. Moreover, no matter what one thinks about the merits of Hall, it’s simply not that consequential of a decision, given how few suits are brought against states in other states’ courts. None of this is to say that there won’t be changes in the Supreme Court’s abortion jurisprudence in coming years. But we’re not sure the outcome in this case really adds much to the prognosticating about the Justices’ views on stare decisis in that very different context.

The final decision of last week didn’t warrant quite as much attention as the first two, but it is certainly important to anyone thinking of snitching on a government contractor. In Cochise Consultancy, Inc. v. United States ex rel. Billy Joe Hunt (No. 18-315), a unanimous Court clarified that a qui tam suit is timely if it is filed within three years of the date when facts material to the cause of action became known to the relevant government official, even if the Government declines to intervene in the case.

The False Claims Act imposes civil liability on “any person” who “knowingly presents, or causes to be presented, a false of fraudulent claim for payment or approval” to the Government, as well as to certain third parties acting on the Government’s behalf. It permits the Attorney General to bring actions, but also allows private persons, called relators, to bring so-called qui tam actions against the defendant “in the name of the Government.” After a relator initiates a qui tam suit, he must deliver a copy of the complaint and supporting evidence to the Government, which then has 60 days to intervene in the action. If the Government intervenes, it assumes primary responsibility for prosecuting the action; if not, the relator may continue to pursue the action himself. In exchange for his trouble, the relator is entitled to 15-25% of the proceeds from any action if the Government does intervene, and 25-30% if it does not, plus attorneys’ fees and costs.

In this case, respondent Billy Joe Hunt filed a complaint alleging that Petitioners, two defense contractors collectively referred to as Cochise, had submitted false claims for payment under a subcontract to provide security services in Iraq. The alleged fraudulent claims occurred in early 2007, but Hunt did not file his qui tam action until November 27, 2013, more than six years later. However, he alleged that he had revealed Cochise’s fraudulent activity to federal agents in November 2010, when he was being interviewed in connection with a different matter.

Enter the FCA’s statute of limitations, or statutes you might say. Two limitations periods apply to a civil action brought under the statute. An action must be brought within either 6 years after the statutory violation occurred (31 U.SC. § 3731(b)(1)), or 3 years after “the official of the United States charged with responsibility to act in the circumstances” knew or should have known of the relevant facts, but not more than 10 years after the violation itself (31 U.S.C. § 3731(b)(2)). Which one applies when a relator allegedly notifies an official with responsibility to act, but the United States doesn’t intervene in the case? The District Court concluded that § 3731(b)(2) shouldn’t apply in nonintervened actions, or if it does, the limitations period should run from the date the relator knew or should have known of the facts giving rise to the action, as opposed to the government official. The Eleventh Circuit reversed, concluding that § 3731(b)(2) does apply and runs from the date the government official responsible for acting knew or should have known of the relevant facts.

The Supreme Court unanimously affirmed the Eleventh Circuit, holding, first, that § 3731(b)(2) applies in relator-initiated suits in which the Government has declined to intervene and, second, that the limitations period begins to run when the government official, not the relator, learns the relevant facts. Justice Thomas took the pen, in a straightforward textualist opinion. Both government-initiated suits and relator-initiated suits are “civil action[s] under section 3730” so both limitations periods are applicable in both types of suits. Justice Thomas rejected Cochise’s argument that it only makes sense to apply § 3731(b)(2) in cases where the Government is a party, because the Government is the party entitled to bring the claim in the first place. To read the statute that way “is at odds with fundamental rules of statutory interpretation.” The phrase “civil action under section 3730” cannot be given different meanings depending on whether the Government intervenes. Justice Thomas also found no textual support for the argument that, even if § 3731(b)(2) applies, the limitations period should run from the date the relator knew, or should have known, the relevant facts. The relator in a nonintervened suit is simply not “the official of the United States” whose knowledge triggers § 3731(b)(2)’s limitations period. Ergo, Eleventh Circuit affirmed.

That covers last week’s opinions, but wait, there’s more! The Court also issued several opinions relating to orders last week, including a few in familiar cases.

As you might recall, last month the Court lifted an Alabama inmate’s stay of execution in Dunn v. Price (No. 18A1053). The majority rejected Christopher Lee Price’s challenge to death by lethal injection, apparently because he had waited too long to raise the challenge and had failed to elect death by nitrogen hypoxia when he was given the chance. Justice Breyer penned a sharp dissent, arguing that anyone who doubts the arbitrariness of capital punishment in America should “review the . . . the circumstances as they have been presented to our Court this evening.” As it turns out, the execution didn’t happen that evening, because the death warrant expired at midnight, before the Court had ruled. Last week, the Court formally denied Price’s petition for certiorari and, in an unusual move, Justice Thomas took the opportunity to “set the record straight regarding the Court’s earlier orders vacating the stays of execution.” Thomas had harsh words for Justice Breyer, whose reasoning he argued “does not withstand even minimal legal scrutiny.” But he saved some scorn for Price’s lawyers and the abolitionist bar more generally, which has adopted a deliberate strategy of “bring[ing] last-minute claims that will delay [an] execution, no matter how groundless.” In Thomas’s view, “[t]he proper response to this maneuvering is to deny meritless requests expeditiously,” which is what the Court did back in April.

Justice Alito (who, along with Justice Gorsuch, joined Thomas’s opinion in Dunn) took up the case against last-minute death-penalty challenges in another familiar case, Murphy v. Collier (No. 18A985). There, as you may recall, the justices granted a stay of execution to a Buddhist inmate in order to allow him to file a cert petition challenging a Texas prison policy that effectively permitted only Christian or Muslim inmates to have a religious adviser present in the execution chamber. The case came just a few weeks after the Court lifted a stay in a similar challenge brought by Muslim inmate in Alabama, who was not permitted to have his Imam attend to him in the execution chamber. The Chief and Justice Kavanaugh were in the majority in both cases, but did not do much to explain the difference between them. Justice Alito was also in the majority in Murphy, or so it appeared, since the original March 28 order indicated only that Justices Thomas and Gorsuch would have denied the application for a stay. Well, fully six weeks later, Justice Alito issued an opinion indicating that he “did not agree with the decision of the Court when it was made.” Alito’s opinion (joined by Thomas and Gorsuch) went on to sound a familiar refrain: last-minute challenges to scheduled executions should be disfavored because they interfere with the enforcement of valid state judgments, disrupt the work of federal courts, harm the interests of applicants with timely valid claims, and cause additional trauma to the families of victims. In Alito’s view, Murphy and his attorneys knew everything they needed to know to bring his equal-treatment claim as early as 2013, but certainly by November 2018, when his execution was scheduled. But he waited three months before raising it. In Alito’s words, “[h]ow can that be justified?” Given the inexcusable delay in bringing the claim, Alito concluded that Murphy could not satisfy the standard for granting a stay. For good measure (and because he seems to believe that Murphy’s still-pending cert petition will ultimately be granted), Alito went on to take apart the Establishment Clause, Free Exercise, and RLUIPA arguments that Murphy has raised in support of his substantive challenge.

Justice Kavanaugh, who had previously penned a bland concurrence in the stay, issued a second “statement” to respond to some of Justice Alito’s arguments. In his view, the stay that the Court previously issued “facilitated the prompt resolution of a significant religious equality problem with the State’s execution protocol and should alleviate any future litigation delays or disruptions that otherwise might have occurred as a result of the State’s prior discriminatory policy.” That’s because, in response to the stay, Texas immediately changed its policy such that now no clerics are permitted in the execution chamber. Justice Kavanaugh stressed that he agreed with the dissenters that undue delays can and should be taken into account, but insisted that Murphy’s case was meaningfully different from Ray’s similar challenge in Alabama.

It remains to be seen whether Murphy’s challenge, or another, will be accepted by the Court for full review. But it is crystal clear that battle lines have been drawn between those justices who believe “death is different” and those who believe that capital defense lawyers are simply playing games to try to delay fully constitutional executions.

In still another death penalty case, Abu-Ali Abdur’rahman v. Parker (No. 18-8332), the Court denied a death-row inmate’s petition for certiorari challenging his method of execution in light of state secrecy laws that denied him access to information about Tennessee’s execution protocol. Justice Sotomayor dissented, reiterating her “opposition to the perverse requirement that inmates offer alternative methods for their own executions,” particularly when state secrecy laws make it difficult to do so.

The Court also denied cert in another (non-capital) prisoner case, Dahne v. Richey (No. 18-761), in which the Ninth Circuit held that a prisoner had a First Amendment right to have his grievance heard even though it contained threats against one of the guards. Justice Alito dissented, joined by Thomas and Kavanaugh, arguing that “the decision of the Ninth Circuit defies both our precedents and common sense.”

And finally, in Myers v. United States (No. 18-6859), the Court GVR’d an Eighth Circuit decision holding that a defendant’s conviction for first-degree terroristic threatening qualifies as a “violent felony” under the Armed Career Criminal Act. Interestingly, the case was remanded not in light of some recent SCOTUS decision, but rather “for further consideration in light of the position asserted by the Solicitor General in his brief for the United States filed on March 21, 2019.” That prompted a dissent from the Chief, joined by Thomas, Alito, and Kavanaugh, who argued that the “hard-working judges of the Eighth Circuit” shouldn’t have to take a “fresh” look at the case just to satisfy the Solicitor General, when the Government believed that the ultimate conclusion the lower court reached was correct (notwithstanding some “mistakes” in its legal analysis).

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About this Author

Tadhg Dooley Appelate Attorney Wiggin Dana New Haven, CT

Tadhg is a Partner in the firm’s Litigation Department, where his practice focuses on appellate and complex civil litigation. He has extensive experience handling appeals in state and federal courts throughout the country and has obtained favorable results for a diverse range of clients, from federal prisoners to foreign presidents, big companies to small towns. Among other recent successes, Tadhg helped a municipality overturn a $6.8 million verdict in the Connecticut Appellate Court, and helped a dental practice overturn a $3.7 million verdict in the Georgia Supreme Court. Tadhg has also...

David Roth Litigation lawyer Wiggin Dana

David is an Associate in Wiggin and Dana’s Litigation Department and a member of the firm’s Appellate, Art and Museum Law, and Intellectual Property Litigation practice groups. He has assisted insurers, universities, large companies, cultural institutions, and sovereign nations in a variety of complex civil litigation and appeals. Representative matters include trademark, copyright, and patent cases; insurance class-actions; art-ownership disputes; and high-stakes business litigation. David has also represented private individuals and companies in several criminal matters and internal investigations.

David received his J.D. from the Yale Law School, where he was a Notes Editor for the Yale Law Journal. He earned an M.A. in Classics from the University of Virginia and a B.S. in Classics from the University of Oregon.

Before joining the firm, David held a clerkship with Judge Christopher Droney of the United States Court of Appeals for the Second Circuit.