Rent-a-Center, West, Inc. v. Jackson (09-497), Holder v. Humanitarian Law Project (08-1498 and 09-89), Monsanto Co. v. Geerston Seed Farms (09-475), Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp. (08-1553) and Union Pacific Railroad Co. v. Regal-Beloit Corp. (08-1554)
Greetings, Court fans!
This Update with cover the four decisions from Monday, including a major arbitration ruling in Rent-a-Center, West, Inc. v. Jackson (09-497), a decision upholding a statute criminalizing the provision of material support to foreign terrorist groups even as applied to plaintiffs' support for the groups' lawful and humanitarian activities in Holder v. Humanitarian Law Project (08-1498 and 09-89), an administrative law decision on the scope of relief a district court may grant when striking down an agency's decision to deregulate in Monsanto Co. v. Geerston Seed Farms (09-475), and a scintillating study on the law governing international shipping contracts in Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp. (08-1553) together with Union Pacific Railroad Co. v. Regal-Beloit Corp. (08-1554). There's a lot to cover, so lets get right to it.
The plaintiff in Rent-a-Center, West, Inc. v. Jackson, brought suit for employment discrimination in federal district court. Based on the existence of an arbitration agreement between the parties, defendant Rent-a-Center moved to stay or dismiss the case pursuant to § 3 of the Federal Arbitration Act ("FAA") and to compel arbitration under § 4 of the FAA. The arbitration agreement – which was a separate and distinct document from Jackson's employment agreement – provided for the arbitration of all disputes arising out of Jackson's employment, including discrimination claims, and specified that "[t]he Arbitrator, and not any . . . court or agency, shall have exclusive authority to resolve any dispute relating to the interpretation, applicability, enforceability or formation of this Agreement, including, but not limited to any claim that all or any part of this Agreement is void or voidable." Plaintiff claimed that the arbitration agreement in its entirety was procedurally and substantively unconscionable under Nevada law because it required arbitration of claims likely to be brought by the employee but not the employer, because of its fee-splitting requirements, and because of its limitations on discovery. Plaintiff therefore argued that the entire agreement, including the provision delegating threshold arbitrability questions (the "delegation provision") to the arbitrator, was invalid and it was for a court – not an arbitrator – to decide the validity of the arbitration clause. The district court granted Rent-a-Center's motion to compel arbitration, reasoning that the arbitration agreement clearly and unmistakably delegated the threshold issue of the enforceability of the arbitration clause to the arbitrator and further, the fee provision was not unconscionable. The Ninth Circuit reversed in part, holding that it was for the court to determine whether the arbitration clause was valid, but agreeing that the fee provision was not unconscionable. The Ninth Circuit remanded to the district court to determine whether the other challenged provisions in the arbitration agreement were unconscionable.
The Court, in a 5-4 ruling splitting along ideological lines, concluded that the arbitrator – not a court – had authority to determine whether the arbitration agreement as a whole was unconscionable under these circumstances. Justice Scalia began by explaining that, under § 2 of the FAA, an arbitration agreement "shall be valid, irrevocable and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract." Here, the arbitration agreement at issue was the delegation provision, which, on its face, gave the arbitrator the power to decide the threshold issue of arbitrability. While the issue of arbitrability is ordinarily for the courts, First Options of Chicago, Inc. v. Kaplan (1995) concluded that parties could delegate this issue to the arbitrator if they did so "clearly and unmistakably," which was the case here given the unequivocal language of the agreement. The only issue, therefore, was whether this clear delegation provision was invalid under § 2. Under Prima Paint Corp. v. Flood & Conklin Mfg. Co. (1967) and Buckey Check Cashing, Inc. v. Cardegna (2006), a claim that a contract as a whole is void because it is unconscionable goes to the arbitrator because the arbitration provision (which simply decides "who" decides the dispute) is severable. However, a claim that the arbitration clause itself is unconscionable goes to the court because it is a direct and specific challenge to who should make the decision. Here, while plaintiff argued that the entire arbitration agreement was unconscionable, plaintiff raised no objection specifically aimed at the delegation provision – which the majority deemed the relevant "arbitration agreement" here. Therefore, under Prima Paint and Buckeye, the arbitrator, not the court, was the proper entity to decide whether the overall arbitration agreement was unconscionable. The majority did note that plaintiff might have been able to frame a challenge directed only at the delegation provision, but did not do so.
Justice Stevens led the dissenters, who argued that the majority, while purporting to apply Prima Paint, effectively upended it. The Prima Paint distinction was between the arbitration agreement and the rest of the agreement – such as the substantive terms of employment or the terms for purchasing a good or service. Here, plaintiff raised a challenge to a free standing arbitration agreement and challenged the validity of that arbitration agreement, not some unrelated term. It was absurd to apply severability to require that a plaintiff pick out a particular sentence of an arbitration agreement and argue unconscionability only specific to that provision. Further, under First Options, if an agreement is unconscionable, it cannot "clearly and unmistakably" manifest the parties intent to arbitrate arbitrability regardless of the language used. (The majority responded to this argument by noting there is a difference between what the parties agreed to and whether that agreement is valid.)
The next case, Holder v. Humanitarian Law Project, required the Court to consider the application of the First and Fifth Amendment to a statute aimed at curbing terrorism. 18 U.S.C. § 2339B makes it a federal crime to "knowingly provid[e] material support or resources to a foreign terrorist organization." "Material support or resources" is currently defined to include inter alia, "service," "training," "expert advice or assistance," and "personnel." In 1998, two U.S. citizens and six domestic organizations, concerned that they would not be able to continue backing the lawful and humanitarian efforts of the Partiya Karkean Kurdistan ("PKK") and the Liberation Tigers of Tamil Eelam ("LTTE"), which were both designated as foreign terrorist organizations by the Secretary of State, filed suit challenging the statute's constitutionality. Plaintiffs expressed interest in (1) training the organizations in the use of international law to peacefully resolve disputes and to negotiate peace agreements; (2) teaching members of the organizations how to petition international bodies for relief, and (3) engaging in political advocacy on behalf of Kurds and Tamils. After years of convoluted litigation, during which Congress twice amended the definition of "material support" to clarify its scope, the Ninth Circuit affirmed the district court's ruling that the statute did not violate plaintiffs' First Amendment speech and association rights, but did violate the Fifth Amendment because the terms "service," "training," and "expert advice or assistance" were unconstitutionally vague in that they might apply to protected expression.
Chief Justice Roberts wrote for the Court (which split 6-3, with Justice Stevens joining the conservatives to form the majority), finding the statute constitutional as applied to plaintiffs' conduct. Before getting to the merits, the Court quickly determined that there was a judiciable case or controversy – "as one might hope after 12 years of litigation" – because the plaintiffs would face a credible threat of prosecution if they engaged in their proposed conduct. The Court next examined whether the material support statute could be construed to avoid reaching the constitutional issues, and determined it could not. Examining the text of the statute and differing language in surrounding provisions, the Court found that Congress intended the statute to apply to anyone who knowingly provides material support to a foreign terrorist organization – regardless of whether the individual intended to further the terrorist activities of the organization. Moving on to vagueness, the Court concluded that terms like "training," "expert advice" and "service" do not invite subjective determinations like other terms previously invalidated on the ground of vagueness (as in a statute criminalizing "vagrants," defined to include "rogues," "vagabonds," and "person who use juggling"!). Further, vagueness challenges look only at the statute as applied to the specific conduct at issue, and the Court found that the plain meaning of the statutory terms "readily and naturally cover" plaintiffs' proposed activities. Notably, even the dissenters agreed with the Court's vagueness analysis, so this portion of the decision is effectively 9-0. The Court then took up plaintiffs' First Amendment claims, noting first that the statute does not prohibit pure expression because "plaintiffs may say anything they wish on any topic" – provided that such speech is independent. However, the Court also rejected the Government's position that the statute merely regulated conduct and thus should be subjected only to intermediate scrutiny, concluding that in the few cases where the statute does infringe upon First Amendment rights (such as here, where the plaintiffs wish to provide material support to the PKK and LTTE in the form of speech), a more "demanding standard" is required. (The Court is unclear exactly what this standard is.) The Court finds this standard met because the Government's "urgent objective of the highest order" in deterring terror justifies this narrowly tailored ban on plaintiffs' expressive activities. The Court deferred to the judgment of Congress and the Executive Branch, which both concluded that all material support to foreign terrorist groups – even with respect to their lawful purposes – can facilitate terrorism. Providing support for these organizations' lawful activities can: free up resources that can then be used in terrorist activities; legitimize the groups; and can upset our allies. Further, the burden on speech is not so great since the statute bars only coordinated activities – independent advocacy for or even membership in a foreign terrorist organization are not prohibited. Thus, the Court found that the statute did not unconstitutionally abridge plaintiffs' freedom of speech and related freedom of association.
The Court repeatedly emphasized, however, what it did not resolve. The decision does not apply to independent advocacy efforts. Nor did it state that any future application of the statute – or any other anti-terrorism legislation – to protected speech will pass First Amendment scrutiny. It does not analyze speech regarding domestic terrorist organizations, nor does it criminalize membership in foreign ones. Nevertheless, the opinion is unlikely to be remembered for its narrow holding. Rather, the case will likely be invoked for the assertion that, in matters of national security and foreign affairs, "[t]he evaluation of the facts by the Executive . . . is entitled to deference."
In an unusual move emphasizing his divergence from the majority opinion, Justice Breyer read his full dissent – joined by Justices Ginsburg and Sotomayor – from the bench. Admonishing the majority for unnecessary deference to the Executive and for resting its decision on "little more than (even informed) speculation," Breyer argued that the Court should have avoided the constitutional question by interpreting the speech-related sections of the statute as applying only to material support intended to further terrorist activities. Any other interpretation would be inconsistent with existing case law, the statute's purpose, and traditional methods of constitutional interpretation. However, even following the Court's reasoning, Breyer would find that the Government's reliance on broad and unsubstantiated assertions of potential harm inadequate to demonstrate that its interest in combating terrorism is sufficiently strong to justify imposing criminal sanctions on lawful political speech that is at the core of First Amendment protection.
Next, in Monsanto Co. v. Geerston Seed Farms, the Court had to balance competing fears of unauthorized agency conduct, judicial overreaching, and . . . mutant alfalfa. The case concerned a decision by the Animal and Plant Health Inspection Service ("APHIS"), a division of the USDA, to deregulate Roundup Ready Alfalfa ("RRA"), a type of alfalfa that had been genetically engineered by Monsanto to be resistant to the weed-killer Roundup (also manufactured by Monsanto). The National Environmental Policy Act ("NEPA") requires agencies to prepare an environmental impact statement ("Impact Statement") for proposed actions that will "significantly affect the quality of the human environment." Agencies do not have to prepare an Impact Statement if they determine after a shorter environmental assessment ("Assessment") that the proposed action will not have a significant impact on the environment. APHIS initially regulated RRA, significantly limiting its use. But after Monsanto sought to deregulate two strains of RRA, APHIS published a draft Assessment, followed by a final Finding of No Significant Impact, thereby deregulating RRA without producing an Impact Statement. Conventional alfalfa farmers and environmental groups sued to challenge the decision and the district court eventually found that APHIS violated NEPA by deregulating RRA without first preparing an Impact Statement. The district court found the Assessment unpersuasive because it failed to address whether deregulation of RRA would lead to the transmission of the genetically engineered gene to organic and conventional alfalfa, or contribute to the development of Roundup-resistant weeds. The district court thus vacated the deregulation order and, with exceptions for farmers who had already bought seeds for the upcoming season, prohibited all future planting of RRA pending the Impact Statement. The Ninth Circuit affirmed the scope of relief granted. (No one disputed that the agency had violated NEPA.)
The Court reversed, in a 7-1 decision (Justice Breyer did not participate). Writing for the Court, Justice Alito first addressed and rejected the parties' standing arguments. The Court found that petitioners were sufficiently injured to seek review because the district court's order eliminated any chance that they could sell RRA under a partial deregulation scheme pending the Impact Statement. Conversely, the respondents had standing to seek injunctive relief because they had established a reasonable probability that their organic and conventional alfalfa crops would be infected with the engineered gene upon complete deregulation. Moving to the merits, the Court found that the district court went too far when it ordered APHIS to prepare an Impact Statement before it could grant Monsanto's deregulation petition "even in part." The district court's injunction was broader than necessary to protect the respondents' rights because APHIS might propose a partial deregulation scheme that would not injure the respondents, and because respondents would have an opportunity to challenge future proposals, in any event. Thus, "until APHIS actually seeks to effect a partial deregulation, any judicial review of such a decision is premature." For the same reason, the Court concluded that the district court had abused its discretion in ordering an almost total ban on new plantings of RRA pending the Impact Statement. Justice Stevens, the lone dissenter, questioned whether the district court had even enjoined APHIS from partially deregulating RRA, as the Court believed. Even if did, Justice Stevens would have affirmed. In his view, the district court reasonably could have feared that partial deregulation would undermine the Impact Statement process, limit future regulatory options, and irreparably harm the respondents, given the evidence in the record concerning the likelihood of genetic transfer.
Finally, we turn to the question of what law governs the domestic rail portion of a shipment that begins overseas. Companion cases Kawasaki Kisen Kaisha Ltd. v. Regal-Beloit Corp. and Union Pacific Railroad Co. v. Regal-Beloit Corp. arose out of the same set of facts: Regal-Beloit and other cargo owners contracted with Kawasaki and its agent "K" Line to ship goods from China to inland destinations in the U.S. "K" Line permissibly subcontracted the domestic rail part of the journey to Union Pacific. Unfortunately, the Union Pacific train derailed somewhere in Oklahoma, destroying the cargo. The question presented was, where could the cargo owners bring suit? The Carriage of Goods by Sea Act ("COGSA") governs the terms of bills of lading issued by ocean carriers engaged in foreign trade, and allows parties to adopt forum-selection clauses. Here, "K" Line had issued through bills of lading specifying the forum of Tokyo District Court in Japan. On the other hand, a statute known as the Carmack Amendment governs the terms of bills of lading issued by domestic rail carriers. Carmack specifies that suit may only be brought in certain U.S. jurisdictions, depending on the carrier and the shipment. The cargo owners brought suit in California, on the theory that Carmack preempted the Tokyo forum-selection clause. The Ninth Circuit sided with the cargo owners, but the Court reversed, 6-3.
Justice Kennedy wrote for the Court. The Court read Carmack to apply only to shipments that began with a "receiving" rail carrier that was obligated to issue a bill of lading. Where (as in this case) no rail carrier was obligated to issue a separate bill of lading because a valid through bill of lading covered the entire journey, any forum-selection clause in the through bill of lading would control. The Court observed that a contrary reading of Carmack would effectively outlaw shipments under single bills of lading, undermining modern international shipping systems. Justice Sotomayor, joined by Justices Stevens and Ginsburg, dissented. The dissenters read Carmack to cover all rail carriers subject to the jurisdiction of the Surface Transportation Board, which included transportation "by railroad and water, when the transportation is under common control, management, or arrangement for a continuous carriage or shipment." Because Carmack required rail carriers to offer Carmack-compliant terms, but also allowed them to offer "alternative terms," the dissenters would have remanded the case for further proceedings to determine whether Union Pacific gave "K" Line the option of Carmack-compliant terms.
The Court also granted cert in three more cases this week:
Virginia Office for Protection and Advocacy v. Reinhard (09-529) asks "[w]hether the Eleventh Amendment categorically precludes an independent state agency from bringing an action in federal court against state officials for prospective injunctive relief to remedy a violation of federal law under the doctrine of Ex parte Young."
Chase Bank USA, N.A. V McCoy (09-329) presents this question for review: "When a creditor increases the period rate on a credit card account in response to a cardholder default, pursuant to a default rate term that was disclosed in the contract governing the account, does Regulation Z, 12 C.F.R. § 226.9(c), require the creditor to provide the cardholder with a change-in-terms notice even though the contractual terms governing the account have not changed?"
Walker v. Martin (09-096) raises yet another procedural habeas corpus issue: "Under state law in California, a prisoner may be barred from collaterally attacking his conviction when the prisoner ‘substantially delayed' filing his habeas petition. In federal habeas corpus proceedings, is such a state law ‘inadequate' to support a procedural bar because (1) the federal court believes that the rule is vague and (2) the state failed to prove that its courts ‘consistently' exercised their discretion when applying the rule in other cases?"
If you made it this far, congrats! We are nearing the end of another eventful Term. The Court released six more decisions today including the three "honest services" cases (one of which doesn't really count since it was a GVR). I'll get you those soon. The Court will issue its four remaining decisions on Monday to wrap up the Term.