End of Term - Credit Suisse Securities (USA) LLC v. Billing (05-1157) and Wilkie v. Robbins (06-219)

July 2, 2007 Supreme Court Update

Greetings, Court fans!
Welcome to the last edition of the Supreme Court Update for the October 2006 Term. (We'll be back with an electronic version of our Term in Review, which provides our take on the highlights of the Term and a handy guide to all the case summaries, in a few weeks.) After last Thursday's and Friday's Updates, we're going out with a whimper, having saved two important, but not headline-catching, cases for last. Both cases are somewhat heartening, however, in that they cut across the "conservative"/"liberal" boundary lines that were so dominant in the last weeks of the Term.
We'll start with Credit Suisse Securities (USA) LLC v. Billing (05-1157), which involved a claim by investors that a number of investment banks, acting as underwriters, violated the antitrust laws when they formed syndicates to execute initial public offerings (IPOs) and jointly agreed to give priority to investors that would (1) buy additional shares of the IPO stock later at escalating prices (a/k/a "laddering"); (2) buy less desirable securities from a broker (a/k/a "tying"); or (3) pay "excessive" commissions on subsequent securities purchases. The underwriters argued that the case should be dismissed because securities laws preempted application of antitrust laws to this conduct, and the District Court agreed. The case split the government, with the SEC arguing that the securities laws completely preempted applying antitrust laws and the Antitrust Division of the DOJ arguing for no preclusion. The Second Circuit agreed with the Antitrust Division and would have allowed the case to go forward, but the Court reversed. (High-fives all around at the SEC.) In doing so, the Court managed to disagree not just with the Antitrust Division and, in part, with the SEC, but also with the face-saving middle ground suggested by the Solicitor General.
Justice Breyer led the six-Justice majority (which included the Chief and Justices Scalia, Souter, Ginsburg and Alito; Kennedy did not participate), holding that the securities laws implicitly precluded applying antitrust laws to the allegedly unlawful IPO practices. Four factors were relevant to the Court's preemption inquiry: (1) Is the activity a heartland securities activity? (2) Does the SEC have authority to regulate the activity? (3) Does the SEC exercise this authority? and (4) Would allowing an antitrust suit be incompatible with the SEC's administration of securities laws? The majority quickly answered the first three questions in the affirmative. IPOs, which raise capital by spreading ownership among a wide sphere of investors, "lie at the very heart of the securities marketing enterprise." To prepare for an IPO, investment banks form syndicates (a practice to which no party objected and which is perfectly appropriate under securities laws) and engage in certain activities (including "road shows" and "book-building efforts," also generally appropriate) to gauge investor interest in the securities and set an appropriate price. The SEC has authority to, and does, regulate all of these activities through very detailed and nuanced rules, taking care of questions 2 and 3. Question 4 proved more challenging because plaintiffs contended that the SEC's regulations also precluded the conduct alleged in the complaint – thus no direct conflict existed between the antitrust laws and the securities laws. As Justice Breyer explained, however, "only a fine, complex, detailed line separates activity that the SEC permits or encourages . . . from activity that the SEC must . . . forbid." (That line is so fine, that without quoting the language of the different regulations verbatim, we'd likely mislead you about what is ok and what is not.) As a result, the Court found it very unlikely that inexpert judges and juries could make these determinations accurately, questioning: "Who but the SEC itself could do so with confidence?" The Court thus found no practical way to confine antitrust suits only to activity that the SEC also forbids. ("[A]ntitrust courts are likely to make unusually serious mistakes in this respect." Thus, the Court also rejected the SG's procedural suggestion that the case be remanded to the District Court to determine if the allegedly unlawful conduct could be separated from conduct permitted by the regulatory scheme and, in so doing, determine whether SEC-permitted and SEC-prohibited conduct were "inextricably intertwined.") The majority also noted that Congress had taken precautions to weed out unmeritorious securities suits by strengthening pleading standards; permitting antitrust claims for this same conduct potentially would allow plaintiffs to circumvent these requirements. Having concluded that antitrust suits were clearly incompatible with SEC administration in this area, the Court found that the antitrust laws were preempted with respect to the allegedly unlawful IPO-related conduct. It is interesting that Breyer's pragmatic concerns won the day here, but failed to garner a majority of the Court in Leegin (see our June 28, 2007 Update), where Breyer advocated maintaining a per se rule prohibiting retail price maintenance agreements for similar administrative reasons.
Justice Stevens concurred in the judgment only. He was not concerned about the ability of courts and juries to do their jobs, but felt that agreements among underwriters on how to market and price an IPO should be considered "procompetitive joint ventures" and therefore not in violation of the antitrust laws. Justice Thomas registered the lone dissent. His analysis was simple: The Securities Act and the Securities and Exchange Act both have broad savings clauses that preserve rights and remedies existing outside of securities laws. Since the securities protections are in addition to, rather than in lieu of, other protections, plaintiffs' antitrust claims were not preempted.
Lastly (and we really mean it this time), in Wilkie v. Robbins (06-219) the Court found that Robbins had neither a Bivens action nor a RICO action against Bureau of Land Management (BLM) officials that allegedly harassed and intimidated him in an attempt to extract an easement across his private property. Unbeknownst to Robbins when he purchased his Wyoming guest ranch, the prior owner had conveyed an easement to the BLM (which would allow the public to cross his property to reach remote federal land) in exchange for a reciprocal easement across certain federal land. The BLM never recorded its easement, and when Robbins registered his deed, he took the land free and clear of the easement under Wyoming law. Upset about having lost the easement, the BLM asked Robbins to give it back. Robbins declined to do so without compensation, and a "seven year campaign" to obtain the easement ensued. Robbins claimed (with the support of a former BLM employee, who retired as a result of the BLM's actions toward Robbins) that the BLM trespassed on his property, broke into his home, brought unfounded criminal charges against him (he was acquitted in 30 minutes; the jury apparently was "appalled" at the government's conduct), suspended his special recreational use permit, brought administrative actions against him for trespass and permit violations (Robbins claimed some were false and others were the product of selective enforcement), and interfered with his business by, for example, trying to get another agency to impound his cattle and following his ranch guests on cattle drives and videotaping them while relieving themselves. For the majority of these actions, Robbins either could have pursued an administrative appeal or filed a lawsuit in state court; he challenged some of the actions administratively and did nothing with respect to others. In general, he had little success. While any one of these indignities didn't amount to much, Robbins argued (and the Court basically agreed) that the whole equated to more than the sum of the parts – as Robbins put it, it was "death by a thousand cuts." Challenging each action simply was not an effective remedy. As a result, Robbins brought a federal lawsuit, in which he claimed that BLM officials violated his Fifth Amendment rights by retaliating against him for attempting to exclude the Government from his property and for refusing to grant an easement without just compensation. Based on this theory, Robbins asserted a claim for money damages of the sort recognized in Bivens v. Six Unknown Federal Narcotics Agents, 403 U.S. 388 (1971). Robbins also asserted a RICO claim against the BLM officials in their individual capacities, claiming that their actions amounted to extortion or bribery under Wyoming law.
Every member of the Court agreed that Robbins' RICO claim was faulty. Extortion by public officials is understood to be the taking of property for private gain under color of official right; here, the BLM officials took nothing for themselves personally. There is no RICO claim when the intended beneficiary of the conduct is the government. The Court parted ways, however, regarding Robbin's Bivens claim. Led by Justice Souter, the majority (all but Justices Ginsburg and Stevens), declined to recognize a Bivens action based on retaliation for the exercise of property rights. Where a federal official violates a constitutional protection, the decision whether to recognize a Bivens action for damage involves two steps. First, courts must consider whether there exists an alternative, existing process to protect the interest involved such that the judicial branch should avoid creating a new action for damages. Second, even absent an adequate alternative remedy, courts must make a judgment about whether to recognize such an action, "paying heed to any special factors counseling hesitation." The Court found that Robbins had administrative and judicial remedies with respect to the vast majority of the actions at issue (noting that, "although he had mixed success, he had the means to be heard"), but also recognized that piecemeal litigation might not be entirely adequate. Turning to step two, the Court weighed the reasons for and against recognizing a new cause of action: on the one side, the inadequacy of discrete, incident-by-incident remedies and, on the other side, the difficulty of defining the limits of legitimate zeal by government officials on the public's behalf where "hard bargaining is to be expected." For the majority, the scale tipped against recognizing a new cause of action; they simply did not believe a workable cause of action could be crafted. Generally, Bivens actions have been permitted for retaliation claims when the case can be decided based on the reason for the actions taken – the "what for" standard (e.g., in a retaliatory discharge suit, the case turns on the reason for the firing – was it in retaliation for protected conduct or for poor performance – a question with a definite answer). Here, a "what for" standard would not work because there was no dispute that the BLM undertook the above actions in an effort to get Robbins to give the BLM an easement. But the government had a right to bargain hard for the easement by, for example, vigilantly enforcing its land rights (e.g., reporting Robbins for trespassing) or refusing to renew a discretionary permit. For the majority, both the government's goal (obtaining the easement) and most (though certainly not all) of the government's tactics were legitimate. Thus, the standard necessarily would turn on whether the government went too far – a "too much" standard that would be administratively infeasible and that would discourage government employees from acting zealously in the government's interests. Justice Thomas, joined by Justice Scalia, wrote a separate concurrence to stress that Bivens is an outdated precedent from the "heady days in which this Court assumed common-law powers to create causes of action." They would confine Bivens and its progeny strictly to their facts and decline to create any new Bivens-esque causes of action.
Ginsburg and Stevens dissented. Notwithstanding the lengthy recitation of the facts by the majority, the dissent first marched through an even lengthier version of the saga, stressing, in particular, the many aspects of the BLM's campaign that clearly were not legitimate – such as calling a neighbor of Robbins and telling her that Robbins might trespass on her land, sparking a serious altercation wherein the neighbor rammed her car into Robbins' cattle and ultimately Robbins' horse that he was riding at the time. Ginsburg noted that a BLM employee testified that he was asked to do things he was not authorized to do, and that the BLM exceeded its appropriate mission in its conduct with respect to Robbins. The majority recognized that Robbins had no truly adequate remedy for the sum of the BLM's conduct. Where no adequate remedy exists, an action for damages directly under the Constitution should lie. The Court has never before rejected a Bivens claim where an adequate alternative remedy did not exist. The majority's "special factor" counseling against creating a new action was a non-starter, as the case really involved a classical "what for" scenario. Even if "BLM officials may have had the authority to cancel Robbins' permits or penalize his trespasses, . . . they were not at liberty to do so selectively, in retaliation for his exercise of a constitutional right."
With that, the October 2006 Term is at an end. Between now and the beginning of the October 2007 Term, things should be quiet at the Court, but we'll keep you posted regarding any notable orders or other actions. We'll also be back soon with our Term in Review. Until then, thank you for another wonderful Term. As always, if you have suggestions or comments we welcome them.
Kim & Ken
From the Appellate Practice Group at Wiggin and Dana
For more information, contact Kim Rinehart, Ken Heath, Aaron Bayer, or Jeff Babbin at 203-498-4400