Supreme Court Update: AT&T Mobility LLC v. Concepcion (09-893), United States v. Tohono O'Odham Nation (09-846) and Order List

May 26, 2011 Supreme Court Update

Greetings, Court fans!

This Update will bring you two decisions and all recent orders.

We'll start with the Court's controversial 5-4 decision in AT&T Mobility LLC v. Concepcion (09-893), which held that Section 2 of the Federal Arbitration Act ("FAA") requires courts to enforce agreements to arbitrate on an individual basis even if a state statute or caselaw would render class actions waivers unenforceable in litigation. The decision has already prompted introduction of the Arbitration Fairness Act, which would eliminate required arbitration clauses in employment, consumer and civil rights cases. The decision may, or may not, be short-lived, but it is making big waves for now.

Justice Scalia penned the majority opinion, joined by the conservative wing of the Court (though Thomas wrote a separate concurrence focusing on a more text-based approach – apparently aiming to out-textualize the self-proclaimed textualist). The Concepcions purchased cellular phone service from AT&T and were promised free cell phones for signing up. The "free" phones however came along with a bill for over $30 in sales tax. They sued in a California district court and their suit was consolidated with a putative class action against AT&T alleging false advertising. AT&T moved to compel arbitration under its contract with the Concepcions, but the district court denied AT&T's motion, concluding that the arbitration agreement was unconscionable under California law because it prohibited class-based arbitration. In Discover Bank v. Superior Court (2005), the California Supreme Court had found class waivers unconscionable where they were included in a consumer contract of adhesion in a setting in which disputes between the contracting parties would predictably involve small amounts and where it was alleged that the party with superior bargaining power carried out a scheme to deliberately cheat a large number of consumers out of relatively small amounts. Under Discover Bank, class waivers under these circumstances are unenforceable whether they would apply in litigation or arbitration. The district court and the Ninth Circuit therefore concluded that the FAA did not preempt the Discover Bank rule because it merely placed litigation and arbitration on equal footing. But the Court disagreed, emphasizing the FAA's "liberal federal policy favoring arbitration" and the fact that arbitration is fundamentally "a matter of contract" – and the terms of that contract (including a class action waiver) must be honored. One of the principal benefits of arbitration is a streamlined, more informal process for resolution of disputes – a benefit that would lost if parties were required to engage in arbitration on a class-wide basis. Moreover, if parties were forced to permit class-wide arbitration, they might well decline to arbitrate altogether since it is one thing to subject yourself to a process with fewer procedural protections and a very circumscribed right of appeal where you are dealing with a single claim. It is another altogether if class arbitration is permitted and the stakes involved may be essentially "bet the company."

Justice Thomas wrote a separate concurrence to elaborate on his view that FAA Section 2 requires enforcement of an arbitration clause unless a party successfully challenges the formation of the arbitration agreement. Section 2 provides that an arbitration clause "shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or equity for the revocation of any contract." For Thomas, the fact that the second portion of that sentence uses only the term "revocation" and omits the terms "invalidation" or "nonenforcement" underscores that Congress did not intend to allow all defenses to any contract to qualify as defenses to an arbitration agreement –- but sought to limit the defenses to the subset that would permit revocation of a contract. That subset would be those defenses going to formation of the agreement only. Since the Discovery Bank rule has no bearing on contract formation, it would not fall under Section 2's exception.

Justice Breyer, joined by Ginsburg, Sotomayor, and Kagan, dissented. Their argument was simply. Under Section 2, arbitration clauses may be invalidated "upon such grounds as exist at law or in equity for the revocation of any contract." Section 2 thus only prohibits defenses to arbitration that single arbitration out for disfavor. The Discovery Bank rule applies equally to litigation and arbitration and therefore fall squarely within Section 2's exception.

Next, in United States v. Tohono O'Odham Nation (09-846), the Court held that parties may not simultaneously bring suit against the government on the same facts in District Court and the Court of Federal Claims ("CFC"), even when they seek different forms of relief in the two actions. 28 U.S.C. § 1500 provides that the CFC shall not have jurisdiction over "any claim for or in respect to which the plaintiff . . . has pending in any other court any suit or process against the United States." The Tohono O'Odham Nation ("Nation"), a federally recognized Indian Tribe, filed suit in U.S. District Court alleging that federal officials had breached fiduciary duties in managing tribal assets. The Nation requested equitable relief, including an accounting. The next day, the Nation filed suit in the CFC, making almost identical allegations, and seeking money damages. The CFC dismissed the case for lack of jurisdiction under § 1500. The Court of Appeals for the Federal Circuit reversed, reasoning that the two suits were not "for or in respect to" the same claim because they requested different relief.

The Court reversed, in a 5-2-1 split. (Justice Kagan did not participate.) In an earlier decision, Keane Corp. v. United States (1993), the Court held that two suits are for or in respect to the same claim for purposes of § 1500 when they are "based on substantially the same operative facts . . . at least if there [is] some overlap in the relief requested." The Court, led by Justice Kennedy, now held that § 1500 is triggered when two suits are based on substantially the same facts – even if there is no overlap in the relief requested. The text of the statute bars not only suits identical to or "for" the same claim, but also suits related – i.e. "in respect to" – the claim. The history of § 1500 and the structure of the CFC support the conclusion that no overlap in the requested relief is necessary. Section 1500 was enacted after the Civil War to bar duplicate lawsuits by former residents of the Confederacy seeking recovery for cotton taken by the United States during the war. Notably, the CFC is the only judicial forum for most non-tort requests for significant monetary relief against the United States, but it has no general power to provide equitable relief. Given the aim of § 1500 to preclude duplicate suits, and the fact that distinct relief is the norm in CFC suits, it would make little sense for § 1500 to require overlapping relief. The Court rejected the Nation's argument that it be unjust to make them choose between two incomplete modes of relief. Since Congress has provided each year since 1990 that Indian trust management claims shall not run until the affected tribe has been given an appropriate accounting, the Nation would likely be able to file in the CFC after the conclusion of their District Court case.

Justice Sotomayor, joined by Breyer, concurred in the judgment only. In their view, the Court did not need to reach the question it did, because the Nation's two actions did request overlapping relief. While the relief requested was styled as equitable restitution in District Court, and as damages in the CFC, there was no doubt that both complaints sought money to remedy the same injury. Under Keane, the Nation's CFC action could, and should, be dismissed on that ground alone. Sotomayor and Breyer believed the Court erred in going beyond Keane to hold that § 1500 barred even suits requesting distinct relief. The history of § 1500 suggests that Congress wanted to preclude the so-called "cotton claimants" from getting monetary damages and their cotton back, i.e. duplicative relief, not that Congress meant to force claimants to choose between two incomplete forms of relief.

Justice Ginsburg penned a short dissent. She largely agreed with Justice Sotomayor's reasoning, but disagreed that the Nation's CFC case should be dismissed. She would allow the Nation to amend its CFC pleading and/or to seek a stay of the CFC action pending resolution of the District Court case.

The Court has granted certiorari in four cases:

M.B.Z. v. Clinton (10-699) asks: (1) "Whether the ‘political question doctrine' deprives a federal court of jurisdiction to enforce a federal statute that explicitly directs the Secretary of State how to record the birthplace of an American citizen on a Consular Report of Birth Abroad and on a passport;" and (2) "Whether Section 214 of the Foreign Relations Authorization Act, Fiscal Year 2003, impermissibly infringes the President's power to recognize foreign sovereigns."

CompuCredit Corp. v. Greenwood (10-948) asks "Whether claims arising under the Credit Repair Organizations Act . . . are subject to arbitration pursuant to a valid arbitration agreement."

Minneci v. Pollard (10-1104) asks "Whether the Court should imply a cause of action under Bivens . . . against individual employees of private companies that contract with the Federal government to provide prison services, where the plaintiff has adequate alternative remedies for the harm alleged and the defendants have no employment or contractual relationship with the government."

Kawashima v. Holder (10-577) asks whether the Ninth Circuit "erred in holding that Petitioners' convictions of filing, and aiding and abetting in filing, a false statement on a corporate tax return . . . were aggravated felonies involving fraud and deceit under 8 U.S.C. § 1101(a)(43)(M)(i), and Petitioners [—lawful permanent residents—] were therefore removable."

Finally, the Court has asked the Acting SG for his view on three cert petitions:

Freeman v. Quicken Loans, Inc. (10-1042), which would ask whether the Real Estate Settlement Procedures Act "prohibits a real estate settlement services provider from charging an unearned fee only if the fee is divided between two or more parties," (i.e., kickbacks).

Faculty Senate of FL v. Florida (10-1139), which would raise two questions: (1) "Whether the court of appeals' decision that Florida's prohibition on universities' use of state or private funds to support academic travel to Cuba and other disfavored nations was a permissible spending measure rather than a sanction preempted by federal law must be reversed," and (2) whether Court's holding in Crosby v. Nat'l Foreign Trade Council (2000), that a state may not restrict the use of public funds through economic sanctions against disfavored nations in the face of overlapping federal sanctions, "also compels the preemption of state-enacted economic sanctions that restrict the use of both public and private funds?"

Republica Bolivariana Venezuela v. DRFP, LLC (10-1144). Under the commercial activity exception of the Foreign Sovereign Immunities Act of 1976, a foreign state is not immune from suit in U.S. court based on an act outside the United States that causes "direct effect" in the United States. This case would ask "whether a foreign state's refusal to honor a demand for payment on the state's alleged securities at a U.S. location causes a ‘direct effect' in the United States based merely on the failure of the securities to exclude the United States as a place of payment."

We will be back imminently with the first in a series of case updates. Until then, as always, thanks for reading!

Kim and Jenny

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