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Volume XI, Number 217

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Supreme Court Update: NCAA v. Alston, United States v. Arthrex, Goldman Sachs Group v. Arkansas Teacher Retirement System, California v. Texas, Fulton v. City of Philadelphia, Nestle USA, Inc. v. Doe

Greetings, Court Fans!

Yesterday, in the first of three announcements scheduled for this week, the Court handed down three decisions: In NCAA v. Alston (No. 20-512), the Court unanimously affirmed a lower-court decision enjoining the NCAA from restricting member colleges from providing education-related benefits (like free laptops and paid internships) to athletes. In United States v. Arthrex (No. 19-1434), the Court held (5-4) that Congress violated the Appointments Clause when it gave administrative patent judges “unreviewable authority” over patent disputes but concluded (7-2) that the remedy was to give the director of the U.S. Patent and Trademark Office the ability to review and alter the decisions of patent judges, rather than striking down the law creating the administrative litigation regime at issue and overturning the decisions patent judges have already issued. And in Goldman Sachs Group v. Arkansas Teacher Retirement System (No. 20-222), the Court held (5ish to 4ish, or maybe 3-3-3) that defendants in securities-fraud cases can rebut the presumption that a class action is appropriate by showing that the challenged statements or misrepresentations were so generic that they could not have affected the price of the security in question, remanding to the Second Circuit to re-consider the potentially generic nature of Goldman’s alleged misrepresentations.

More on those cases soon. For now, we’re still playing catch-up from last week, when the Court handed down three near-blockbusters (i.e., significant cases decided on narrow grounds). Read on for our summary of California v. Texas (No. 19-840), in which the Court once again turned away a challenge to the Affordable Care Act, albeit on standing grounds; Fulton v. City of Philadelphia (No. 19-123), in which the Court unanimously held that Philadelphia violated a Catholic social-service agency’s free-exercise rights by refusing to contract with it unless the agency certified same-sex couples for foster placements but did not go further and overturn Employment Division v. Smith (1990), as the agency and several amici requested; and Nestle USA, Inc. v. Doe (No. 19-416), where an eight-Justice majority held that an Alien Tort Statute complaint failed adequately to allege a nexus to the United States but declined yet again to decide whether corporations can be sued under the ATS in the first place.

First up, in California v. Texas (No. 19-840), the Court held 7-2 that Plaintiffs lacked standing to challenge the constitutionality of the minimum essential health insurance coverage requirement (often referred to as the “individual mandate”) in the Patient Protection and Affordable Care Act (ACA). When the ACA was passed, the individual mandate was to be enforced through a penalty that varied based on income level and was collected at the time an individual’s tax return was filed. This mandate was viewed as important to other aspects of the law, including the “guaranteed issue” provision, which required insurers to provide policies regardless of pre-existing conditions. By ensuring that lower risk individuals purchased insurance, risk would be spread. However, in 2017, after a failed effort led by Republicans to repeal the ACA entirely, Congress amended the Act to set the penalty at $0. Thus, while the individual mandate technically remains on the books, it is completely unenforceable.

In 2018, Texas, joined ultimately by 17 other States and 2 individuals, brought suit seeking a declaration that the individual mandate (absent the penalty) was unconstitutional because it exceeded Congress’s enumerated powers to enact. More aggressively, they argued that, because the mandate is inseverable from the remainder of the ACA, the entire law must be invalidated. As you may recall, in the first challenge to the ACA to reach the Court, National Federation of Independent Business v. Sebelius (2012) (NFIB), the Court concluded that the individual mandate was not a valid exercise of Congress’s authority to regulate interstate commerce. However, a narrow majority concluded that the mandate was a valid exercise of Congress’s taxing power, viewing the “penalty” as a tax. Plaintiffs in this case thus argued that, with the penalty set at $0, it could no longer be justified as a valid exercise of Congress’s taxing power. The district court agreed, finding that the individual mandate was unconstitutional and integral to the entirety of the ACA and thus struck down the entire law but stayed its judgment pending appeal. The Fifth Circuit also found the mandate unconstitutional but concluded that the district court’s severability analysis was inadequate and remanded for further proceedings. The Supreme Court managed to duck all of these tough issues, however, and in so doing, left the ACA intact once again.

Led by the ever-pragmatic Justice Breyer, the majority concluded that all of the plaintiffs lacked standing to challenge the constitutionality of the individual mandate. With respect to the two individuals, the Court easily concluded that with no penalty attached, they could not claim any harm stemming from the allegedly unlawful requirement, as there was no possibility of enforcement. Turning to the plaintiff states, the Court found that all of the monetary injuries they allegedly suffered were due to other portions of the ACA that were not alleged to be unlawful. Accordingly, they alleged no injury traceable to enforcement of the allegedly unlawful mandate. Justice Thomas, who joined the majority, wrote separately to underscore that while “this Court has erred twice before in cases involving the [ACA], it does not err today.” He agreed with the majority’s standing analysis and specifically emphasized that he did not think the Court should consider the dissent’s theory of “standing through inseverability” because, in his view, it was not adequately addressed below or at the cert stage.

Justice Alito, joined by Justice Gorsuch, issued a blistering dissent. The states, in their view, clearly have standing to challenge the individual mandate because the states argued that this provision is inseverable from the rest of the law, which indisputably imposes significant costs on the states. Thus, the states’ harm is traceable to the challenged provision as, without it, the ACA would not exist, at least in its current form. That theory was clearly raised below, and, according to the dissent, it is a theory that has been accepted many times before by the Court. Turning to the merits, the dissent would conclude that the individual mandate is unconstitutional as (since it is no longer a tax), it is outside the scope of Congress’s powers. And, unsurprisingly, the Court would conclude that the individual mandate was viewed as a critical component of the ACA and thus, was inseverable from the remainder of the law. The dissent called out the Court for rescuing the ACA in NFIB by calling a penalty it a tax, and yet now relying on standing doctrine to permit “a tax that does not tax” to stand. “Fans of judicial inventiveness will applaud once again. But I must respectfully dissent.”

And so the ACA’s winning streak at One First Street continues, with ever-increasing margins of victory (5-46-3, and now 7-2). We look forward to reporting on the 8-1 decision brushing back the next challenge sometime in OT23…

Last week’s other near-blockbuster was even more lopsided. The Court in Fulton v. City of Philadelphia (No. 19-123) unanimously concluded that Philadelphia violated a Catholic social-services agency’s free-exercise rights when it ousted the agency from its foster program for refusing to certify same-sex couples as foster parents but split bitterly over whether to revisit the Court’s 31-year-old decision in Employment Division v. Smith (1990).

For decades prior to 2018, the City of Philadelphia’s Department of Human Services had contracted with Catholic Social Services (among dozens of other agencies) to help place children in foster care. Under Pennsylvania law, state-licensed foster agencies like CSS have authority to certify foster families after considering their “ability to provide care, nurturing and supervision to children,” their “existing family relationships,” and their ability “to work in partnership” with a foster agency. When the City seeks to place a child in foster care, it sends the agencies it has contracted with a request and those agencies report whether any certified families are available. Because CSS believes that “marriage is a sacred bond between a man and a woman,” it will not certify unmarried couples (regardless of their sexual orientation) or same-sex married couples. (CSS does not object to certifying gay or lesbian individuals as single foster parents.) Although no same-sex couple had ever sought certification from CSS, if one did, CSS would refer it to one of the other 20-odd agencies in the City that do certify same-sex couples. Although the City had contracted with CSS for 50 years without incident, in 2018 a newspaper ran a story on CSS’s refusal to certify same-sex couples, and the City Council called for an investigation, ultimately leading the Department of Human Relations to withdraw its contract with CSS. The City later explained that the refusal of CSS to certify same-sex couples violated a nondiscrimination provision in its contract with the City as well as the non-discrimination requirements of the City’s Fair Practices Ordinance.

CSS sued, alleging that the City’s refusal to refer children to CSS unless it certifies same-sex couples violated the Free Exercise and Free Speech Clauses of the First Amendment. The District Court denied relief, holding that the contractual nondiscrimination requirement and Fair Practice Ordinance were both neutral and generally applicable rules under Employment Division v. Smith (1990). After the Third Circuit affirmed, CSS filed a cert petition in which is argued not only that the Third Circuit should be reversed but that the Supreme Court should reconsider the Smith precedent. That set the case up as a potential blockbuster, with dozens of amicus briefs filed on each side of the issue.

To the disappointment of some, and relief of others, the Supreme Court avoided the Smith question with a narrow, unanimous ruling in favor of CSS (with a number of separate opinions setting the stage for a later showdown on the more difficult questions). Writing for the Court, the Chief acknowledged that Smith loomed large in the case, but concluded that “this case falls outside Smith because the City has burdened the religious exercise of CSS through policies that do not meet the requirement of being neutral and generally applicable.” Invoking another recent near-blockbuster, Masterpiece Cakeshop v. Colorado Civil Rights Comm’n (2018), CSS had argued that the City transgressed Smith’s neutrality requirement, but the Court opted instead to “resolve this case under the rubric of general applicability.” A law is not generally applicable, the Chief observed, if it “invites the government to consider the particular reasons for a person’s conduct by providing a mechanism for individualized exceptions.” Nor is it generally applicable “if it prohibits religious conduct while permitting secular conduct that undermines the government’s asserted interests in a similar way.” Here, the provision of the City’s foster-care contract prohibiting discrimination on the basis of sexual orientation was not generally applicable because it “incorporates a system of individual exemptions, made available . . . at the ‘sole discretion’ of the Commissioner,” who has refused to grant an exemption to CSS. As the Court held in Smith, the government “may not refuse to extend [an exemption] to cases of ‘religious hardship’ without compelling reason.” As for the Fair Practice Ordinance (Philadelphia’s public-accommodations law), the Chief (apparently deciding a question of municipal law) concluded that it does not apply to CSS to begin with because “foster care agencies do not act as public accommodations in performing certifications.”

Because the Chief concluded that the City’s contractual nondiscrimination requirement is not generally applicable, he reasoned that the City’s actions must be “examined under strict scrutiny regardless of Smith” and, therefore, “we have no occasion to reconsider that decision here.” The majority swiftly concluded that Philadelphia’s exclusion of CSS did not pass strict scrutiny because its stated interests were insufficient in light of the fact that it was willing to grant exemptions to its requirements to other agencies.

Justice Barrett penned a brief concurrence, joined by Justices Kavanaugh and (to all but an introductory paragraph suggesting Smith should be reconsidered) Breyer. In her view, even if Smith was wrong, it is not so easy to replace. “There would be a number of issues to work through if Smith were overruled,” she observed, listing several. But “[w]e need not wrestle with these questions in this case . . . because the same standard,” strict scrutiny “applies whether Smith stays or goes.” Because all nine Justices agree that the City cannot satisfy strict scrutiny, there is no need to go further.

Justice Alito (joined by Justices Thomas and Gorsuch) wanted to go much further. In a 54-page concurrence (compared to the 15-page majority opinion), he spent several pages blasting Philadelphia for “ousting CSS” even though “there is no evidence that CSS’s policy has ever interfered in the slightest with the efforts of a same-sex couple to care for a foster child” and “even though [the City’s step] threatens the welfare of children awaiting placement in foster homes.” He then turned his ire toward the majority for punting on the question the Court had agreed to take on, whether Smith should be revisited. Alito argued that the Court’s “decision might as well be written on the dissolving paper sold in magic shops,” because the City can easily eliminate the never-used exemption power from its foster contract and then “voilà, today’s decision will vanish—and the parties will be back where they started.” Meanwhile, the Court’s decision provides no guidance on the legality of similar efforts in other cities, which may not have the handy exemption power that allowed the Court to skirt the Smith question in this case. Needless to say, Alito wanted to reconsider Smith, and reverse it. The decision, he argued “can’t be squared with the ordinary meaning of the text of the Free Exercise Clause or with the prevalent understanding of the scope of the free-exercise right at the time of the First Amendment’s adoption. . . . [a]nd it has not aged well.”

Justice Gorsuch also wrote separately (joined by Thomas and Alito). He concurred in the judgment, of course, but wrote an opinion suggesting that the Court’s stated reason for reversing—its finding that the foster contract is not generally applicable—is faulty. He criticized the majority for engaging in a “dizzying series of maneuvers” through Philadelphia’s municipal code and its foster contract in order to avoid having to decide the question it took up for review. “Given all the maneuvering,” Gorsuch mused, “it’s hard not to wonder if the majority is so anxious to say nothing about Smith’s fate that it is willing to say pretty much anything about municipal law and the parties’ briefs.” Needless to say, like Alito, he felt the Court should have decided the difficult constitutional question before it, revisiting Smith.

Finally, in Nestle USA, Inc. v. Doe (No. 19-416) (consolidated with Cargill, Inc. v. Doe (No. 19-453)), an eight-Justice majority dismissed a suit under the Alien Tort Statute (ATS) against Nestle and Cargill over their alleged complicity in child-slavery in Ivory Coast cocoa farms, concluding the complaint failed to allege an adequate connection with the United States. But maybe more notable is what it did not decide: Yet again, the Court declined to answer the much-debated question (among scholars and lower courts, anyway) of whether corporations (as opposed to merely individuals) can be sued under the ATS. But through concurrences, several additional members of the Court weighed in on that question, and if you add up everybody’s votes, it now looks (to us anyway) like there’s a majority who believe corporations can be on the hook.

If you need an ATS refresher, here goes. The statute, enacted way back in 1789 and now codified at 28 USC 1350, gives federal courts jurisdiction over actions filed by aliens for torts “committed in violation of the law of nations.” It was then ignored for two centuries (give or take) until the 1980s, when the victims of foreign human-rights abuses started using it as a tool to seek compensation from alleged rights abusers subject to U.S. court jurisdiction. But the statute itself does not create a cause of action for torts “committed in violation of the law of nations” or explain exactly what that means. Eventually, in 2004’s Sosa v. Alvarez-Machain, the Court held that the ATS didn’t just create jurisdiction; it also directed federal courts to recognize new causes of action for international-law violations, but only when the new tort is sufficiently similar to the type of claims the 1789 Congress would have recognized as torts in violation of the law of nations.

The next part of the story is 2010’s Kiobel v. Royal Dutch Petroleum Co. In the aftermath of Sosa, foreign plaintiffs brought a number of suits against U.S. and foreign companies, alleging that they were complicit in serious human rights abuses (torts in violation of the law of nations under Sosa) committed abroad. Many of them argued (essentially) that the ATS doesn’t allow suit against corporations because international law can only be violated by individuals. In Kiobel, the Supreme Court granted cert to decide whether that was right, but then it decided the case on a much different ground, concluding that the general presumption against applying U.S. law extraterritorially (i.e., outside the U.S.) prevents the ATS from applying to suits by foreigners, against foreigners, over foreign conduct.

Finally you have the Court’s 2018 decision in Jesner v. Arab Bank. There foreign plaintiffs sued a foreign corporation for aiding and abetting terrorism abroad, but at least some of the defendant corporation’s acts occurred in the United States, so the case wasn’t squarely within Kiobel’s rule. Granting cert to decide whether the ATS allowed suit against corporations generally, the Court again took another course, deciding that courts shouldn’t recognize causes of action against foreign corporations under the ATS given the potential diplomatic consequences of subjecting them to liability. But what to do about domestic corporations remained unresolved.

With all that out of the way, we can finally turn to Nestle. According to the complaint’s allegations, the Ivory Coast is responsible for most of the world’s cocoa supply. But many of its cocoa farms apparently operate under deplorable conditions, using child slaves to harvest the coca. Six of these former child slaves sued Nestle and Cargill, two U.S. based companies that purchase, process, and sell Ivory Coast cocoa. But neither company operates farms in the Ivory Coast directly; instead they provide technical and financial resources in exchange for the right to buy the farms’ products. The plaintiffs alleged that through these actions, Nestle and Cargill were liable for aiding and abetting child slavery, making them liable under the ATS. The district court dismissed, finding that plaintiffs had failed to allege an adequate connection to the United States under Kiobel. But the Ninth Circuit reversed its extraterritoriality holding. It then held that the ATS does allow suit against domestic corporations (just not foreign ones). After the Court granted cert, Nestle and Cargill’s lawyers focused primarily(though not exclusively) on this second part, arguing (as lawyers had before in Kiobel and Jesner)that the ATS simply does not allow any corporation to be sued.

Once again, though, the Court chose to decide the case on another ground. In a brief opinion joined by everyone but Justice Alito, Justice Thomas quickly concluded that the plaintiffs’ suit impermissibly sought to apply the ATS extraterritoriality, in violation of Kiobel. Essentially all the conduct the plaintiffs claimed had aided and abetted child slavery—providing training, equipment, and cash to Ivory Coast farms—occurred in the Ivory Coast. The plaintiffs vaguely alleged that Nestle and Cargill had made decisions about how to operate their international megacorps from offices in the United States, but these allegations of “general corporate activity” in the United States were not enough to displace the presumption that U.S. law does not apply abroad and subject the companies to ATS liability.

After that near unanimity, though, things get more complicated. First, Justice Thomas, joined now only by Justices Gorsuch and Kavanaugh (two short of a majority) went further. Repeating a view he has expressed in prior ATS cases, he opined that Sosa was essentially wrong and federal courts simply should not recognize any newcauses of action for torts in violation of international law, thus limiting the ATS to the handful of such torts that were established in 1789 common law.

Next it was Justice Gorsuch’s turn. In part of his concurrence joined only by Justice Alito, he took issue with Nestle and Cargill’s main argument: that corporations cannot be sued under the ATS because international law recognizes only individual liability. But surveying the history of the ATS, he saw little reason to think its drafters way back in 1789 would have understood it as distinguishing between corporate and individual defendants: both are potentially liable. This is significant because in Jesner, Justices Sotomayor, Breyer, and Kagan (along with the late Justice Ginsburg) had rejected (in dissent) some lower courts’ view that international law precludes corporate liability. Adding up their three votes with those of Alito and Gorsuch, there now seems to be a majority who believe corporations can be liable under the ATS (albeit the way the two sides get there is quite different, with Gorsuch and Alito relying on Congress’s understanding of the ATS, and Sotomayor, Breyer, and Kagan relying on international law). In a part of his concurrence joined only by Justice Kavanaugh (and not Alito), Justice Gorsuch continued where Justice Thomas left off, citing additional reasons why courts should not create new torts subject to the ATS, instead leaving that task to Congress.

Justice Sotomayor, joined by Justice Breyer and Kagan, then came to Sosa’s defense. Taking several of Justice Thomas’s points on one-by-one, she argued that the text and history of the ATS requires courts to recognize new causes of action under the ATS, though admittedly they must do so carefully.

Finally, we reach our lone dissenter. Surprisingly, it’s the Court’s most conservative member: Justice Alito. He began by noting that the reason the Court took the case was to decide the corporate-defendant issue, and he reiterated his agreement with Justice Gorsuch that corporations are appropriate defendants in ATS suits. What of the majority’s view that the suit was an improper extraterritorial application of U.S. law? Well he agreed that’s likely so, but deciding that question for sure would require answering a host of other questions—like whether to allow plaintiffs to amend their complaint and whether aiding and abetting liability exists under the ATS—that were not fully considered below. He would thus simply answer the question the Court granted cert to decide and let the lower courts sort out the rest.

So the lesson of last week? Justice Alito really doesn’t like punting on difficult questions. Stay tuned to find out what he (and of course the others) have to say about the last decisions of the term.

© 1998-2021 Wiggin and Dana LLPNational Law Review, Volume XI, Number 173
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Tadhg Dooley Appelate Attorney Wiggin Dana New Haven, CT
Partner

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...

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David Roth Litigation lawyer Wiggin Dana
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David is Counsel 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...

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