Publications

Greetings, Court fans!

I’m back to bring you the decisions and cert grants from this week. After this batch, we shouldn’t see additional decisions until the week of May 18th.

In Arthur Andersen LLP v. Carlisle (08-140), the Court held 6-3 that, when a district court denies a request to stay litigation in favor of arbitration under § 3 of the Federal Arbitration Act (“FAA”), an appellate court has jurisdiction to consider an interlocutory appeal from that denial under FAA § 16(a)(1)(A), even if the party requesting the stay was not a party to the underlying agreement containing the arbitration clause. Here, plaintiffs sued an investment manager who sold them a failed tax shelter, as well as a host of other people. The only arbitration agreement was in the investment management contract, but other defendants claimed an equitable right to invoke that arbitration agreement to stay litigation of the claims against them. The district court denied the motion; the non-signatory defendants appealed; and the Sixth Circuit dismissed the appeal for lack of jurisdiction, reasoning that because the defendants weren’t parties to the arbitration agreement, it wasn’t really a § 3 motion to stay, and thus, the § 16 right of interlocutory appeal didn’t apply. The Court reversed in a short opinion by Justice Scalia. FAA § 16(a)(1)(A) allows an appeal “from . . . an order . . refusing a stay of any action under section 3.” The merits of the stay request are thus irrelevant because “even utter frivolousness of the underlying request” cannot convert the court’s order into anything other than a denial of a request for stay under § 3. This would be a “remarkably hollow victory,” however, if on the merits, non-parties were categorically forbidden from obtaining a § 3 stay, as the Sixth Circuit held. But the Court rejected this interpretation, concluding that the FAA does not displace background principles of state law regarding the scope of agreements (including who can enforce them). So on remand, the district court should look to state law to see if the non-signatory defendants have an equitable right to seek arbitration through the investment manager’s arbitration agreement with the plaintiff.

Justice Souter (joined by the Chief and Justice Stevens) dissented out of a concern that the Court’s expansive interpretation of § 16 would allow people to come up with “creative” theories to request a stay based on someone else’s arbitration agreement, and then (regardless of the merits of those “creative” theories) be able to take an interlocutory appeal and hold-up litigation. (To address this concern, the majority held that, if the appeal is frivolous, the district court can continue to exercise jurisdiction over the ongoing court case even while the § 16 interlocutory appeal is pending. The dissent didn’t think that was sufficient, though, since many long-shot appeals may still not be “frivolous.”)

The Court followed up that scintillating decision on appellate jurisdiction with another in Carlsbad Technology, Inc. v Hif Bio, Inc. (07-1437), in which the Court unanimously concluded that a district court’s order remanding a case to state court after declining to exercise supplemental jurisdiction over state-law claims is not a remand for lack of subject matter jurisdiction. Thus, appellate review is not barred by 28 U.S.C. §§ 1447(c) or (d), which provide, in part, that remands “for lack of subject matter jurisdiction” are “not reviewable on appeal or otherwise.” Plaintiff originally sued in California state court, asserting both federal and state law claims. After defendants removed the case to federal court under 28 U.S.C. § 1441(c), which allows removal of an entire case when the federal court has jurisdiction over at least one claim, defendants successfully moved to dismiss the only federal claim. The district court then declined to exercise jurisdiction over the remaining state law claims under 28 U.S.C. § 1367(c)(3), and instead remanded them to state court. Defendants appealed, arguing that the district court should have exercised supplemental jurisdiction because the state law claims implicated federal patent rights, but the Federal Circuit dismissed, concluding that the remand order could be “colorably characterized” as based on lack of subject matter jurisdiction, and thus was unreviewable under § 1447(c) and (d).

Led by Justice Thomas, the Court reversed. While § 1447(d)’s text would seem to bar all appellate review of remand orders (“An order remanding a case to the State court from which it was removed is not reviewable on appeal or otherwise. . . .”), in Thermtron Products, Inc. v. Hermansdorfer (1976), the Court held that it was limited to those grounds specified in § 1447(c), including lack of “subject matter jurisdiction.” (Since neither party asked the Court to revisit its holding in Thermtron, the Court declined to do so in this case. Note to litigants: Next time, ask.) Thus, the Court was faced with the simple question: Is a district court’s decision declining to exercise supplemental jurisdiction over state law claims based on “lack of subject matter jurisdiction.” The Court easily answered: “No.” The district court’s statutory jurisdiction over supplemental state law claims does not evaporate just because the court elects not to exercise it. Thus, on remand, the Federal Circuit should review the district court’s remand order for abuse of discretion.

In three lively concurrences, various Justices previewed the coming battle over the continuing viability of Thermtron. Justice Stevens thought the holding in Thermtron was at odds with the statutory text of § 1447(d), but found that stare decisis mandated maintaining the decision, noting that “[t]he Court’s adherence to precedent in this case represents a welcome departure from its sometimes single-minded focus on literal text.” Justice Scalia agreed that Thermtron was wrongly decided—but, unlike Stevens, would likely overturn the decision. In pure-biting Scalia style, he responded to Stevens: “If this muddle represents a welcome departure from the literal text, the world is mad.” Finally, Justice Breyer, joined by Souter, concurred to point out another anomaly about § 1447(d). As interpreted, it permits review of a case that once contained a federal law issue, but now contains only state law claims (a decision unlikely to have major adverse consequences), while—under Powerex Corp. v. Reliant Energy Services, Inc. (2007)—it forbids review of a case involving a foreign sovereign entity (a decision that could have significant harmful results). Because “something is wrong” with this result, Breyer urged “the experts in this area of the law [to] reexamine the matter with an eye toward determining whether statutory revision is appropriate.”

Next up, in Burlington Northern & Santa Fe Railway Co. v. United States (07-1601), the Court addressed two narrow liability issues under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”), and in both instances, made it harder for the Government to recover costs expended to clean up contaminated sites from potentially responsible parties (appropriately referred to as “PRPs”). At issue was the $8 million (and counting) clean up of the former site of an agricultural chemical distributor (known as “B&B”) in California’s central valley. Shell Oil Company sold bulk chemicals to B&B, knowing that it was a “sloppy operator” and that some of the delivered chemicals would leak or spill. For the district court and the Ninth Circuit, this was enough to classify Shell as an arranger of the disposal of hazardous waste, and thus a PRP under CERCLA. Burlington Northern & Santa Fe Railway Company and Union Pacific Railway Company (“Railroads”)—PRPs because they owned part of the property on which B&B operated—adopted a scorched earth, all-or-nothing approach to liability at trial, and failed to offer any evidence on possible allocation of clean-up costs. The district court nonetheless did its own math sua sponte, and apportioned only 9% of the clean-up costs to the Railroads. The Ninth Circuit reversed because the burden on the question of apportionment was on Burlington.

Justice Stevens, for an eight-member majority, reversed on both issues. As to whether Shell’s sales to a sloppy operator transformed Shell into an “arranger” of hazardous waste disposal under CERCLA, the Court held that the intent behind Shell’s transaction was key: There must have been evidence that Shell intended to dispose of a portion of the chemicals sold. Finding none—and finding contrary evidence that Shell actually took affirmative steps to try to reduce the number of spills and leaks—the Court reversed. Turning to Burlington’s failure to provide evidence on apportionment, the Court first affirmed the general principle that joint and several liability is not always required under CERCLA when there is a reasonable basis for determining the contribution of each cause to a single harm. Even though Burlington failed to assist the district court in dividing up the harm, the facts in the record reasonably supported the district court’s allocation calculation—so the Ninth Circuit erred in reversing. Justice Ginsburg was the lone dissenter. She would have classified Shell as an arranger of hazardous waste disposal because Shell knew chemicals were spilling each and every time it made a delivery and because Shell’s business decision to deliver its chemicals in bulk instead of in the 55 gallon drums it used to use (which did not spill) directly led to leaks and spills. (CERCLA’s definition of “disposal” includes “spilling [or] leaking”—suggesting (at least for Ginsburg) that disposal need not be the “purpose” of the transaction, if it is a known result.) As to apportionment of liability, Ginsburg thought the district court’s sua sponte independent determination was “questionable,” and potentially deprived the Government of an adequate opportunity to address the issue. She would therefore remand to give all parties an opportunity to address the allocation of costs.

Finally, in Flores-Figueroa v. United States (08-108), the Court held that the federal aggravated identity theft statute, 18 U.S.C. § 1028A(a)(1), requires the Government to prove that the defendant knew that the identification at issue belonged to another person—and was not just a “fake” ID. The statute adds a mandatory 2-year consecutive sentence for any defendant convicted of certain crimes, if, during or in connection with the commission of those crimes, the offender “knowingly transfers, possesses, or uses, without lawful authority, a means of identification of another person.” Flores-Figueroa, a Mexican immigrant, gave his employer counterfeit Social Security and alien registration cards that used his real name, but numbers assigned to other people. At trial, Flores argued that the Government couldn’t prove that he knew that the documents contained numbers assigned to real people, as opposed to dummy data. In response, the Government argued that it didn’t need to because “knowingly” did not apply to the requirement that the means of identification be “of another person.” The district court and the Eighth Circuit agreed. But the Court did not.

Led by Justice Breyer, the Court began by explaining that in “ordinary English, where a transitive verb has an object, listeners in most contexts assume that an adverb (such as knowingly) that modifies the transitive verb tells the listener how the subject performed the entire action . . . .” While the Court provided a plethora of examples, the Government could come up with no real-life counter-examples to support its strained interpretation. The Court acknowledged that there might be exceptions to this rule, but posited that “such sentences typically involve special contexts or themselves provide a more detailed explanation of background circumstances that call for such a reading.” Here, applying the knowledge requirement to each element of the offense would accord with the ordinary and natural reading of the text and would also be “fully consistent” with how courts ordinarily interpret mens rea requirements in criminal statutes. No special circumstances supported a contrary interpretation. While the Government pointed to legislative history to buttress its argument, the Court found the history inconclusive. The Court also rejected the Government’s argument that practical enforcement issues (i.e., the difficulty of proving knowledge) supported its interpretation. While the Court agreed that proving knowledge that the means of identification was “of another person” might prove difficult in some cases, in the more traditional identity theft cases, such as “dumpster diving, computer hacking, and the like,” “intent is generally not difficult to prove.” Thus, any practical enforcement concerns were insufficient to outweigh the clarity of the text. Justice Scalia, joined by Justice Thomas, concurred in part and in the judgment to make clear that the Court’s opinion should not be taken to suggest that courts should read the word “knowingly” as applying to each element of an offense in every context—and to the extent the Court’s opinion suggested otherwise, he did not join it. Scalia also refused (unsurprisingly) to join in the Court’s analysis of the statute’s legislative history. Justice Alito wrote a separate concurrence in part and in the judgment, echoing that the Court’s opinion should not be interpreted to mean that “the mens rea of a federal criminal statute nearly always applies to every element of the offense.” It is fair to begin with a presumption that the mens rea requirement applies to all elements, but in the end, it is context that matters. Here, the statute’s text supported applying the knowledge requirement to the “of another person” element, particularly because eliminating the knowledge requirement for that element would lead to the “exceedingly odd” result of a conviction based on the random chance that the fake identification at issue happened to use numbers belonging to real people.

The Court also grant cert in the following cases:

Sullivan v. Florida (08-7621) and Graham v. Florida (08-7412) which (though they frame the questions presented slightly differently) both ask the Court to determine whether the Eighth Amendment’s ban on cruel and unusual punishment prohibits the imprisonment of a juvenile for life without the possibility of parole as punishment for the juvenile’s commission of a non-homicide crime.

Shady Grove Orthopedic Assoc. v. Allstate Ins. Co. (08-1008), where the Court will consider whether state legislatures can prohibit federal courts from using the class action devise for state law claims.

Hemi Group v. New York (08-969), which presents the following question for review: “Whether city government meets the Racketeer Influenced and Corrupt Organizations Act standing requirement that a plaintiff be directly injured in its ‘business or property’ by alleging non commercial injury resulting from non payment of taxes by non litigant third parties.”

Enjoy the break! When the Court returns, the deluge will begin in earnest as the Court wraps up the Term.

Kim

From the Appellate Practice Group at Wiggin and Dana
For more information, contact Kim Rinehart or any other member of the Practice Group at 203-498-4400