Supreme Court Update: Credit Suisse Securities (USA) LLC v. Simmonds (10-1261), Roberts v. Sea-Land Services, Inc. (10-1399) and Order List
Greetings, Court fans!
We're back to round out our coverage of the Court's recent activity, with Credit Suisse Securities (USA) LLC v. Simmonds (10-1261), considering tolling of the time to bring suits against corporate insiders for "short-swing" profits under Section 16(b) of the Securities Exchange Act of 1934, Roberts v. Sea-Land Services, Inc. (10-1399), on the appropriate measure for capping benefits under the Longshore and Harbor Workers' Compensation Act, and a handful of cert grants and SG invites.
In Credit Suisse Securities (USA) LLC v. Simmonds (10-1261), the Court held 8-0 that corporate insiders' failure to file stock disclosure forms under Section 16(a) of the Exchange Act does not automatically toll the time to sue them for "short-swing" profits under Section 16(b) of the Act. However, an equally divided Court affirmed (without precedential effect) the Ninth Circuit's holding that Section 16(b) is subject to equitable tolling principles. Section 16(a) of the Exchange Act requires certain corporate insiders – directors, officers, and over 10% shareholders – to file forms with the SEC publicly disclosing any purchases or sales of company stock. Section 16(b) of the Act permits the corporation or any of its shareholders to sue the insiders to disgorge any "short-swing" profits made from the purchase then sale, or sale then purchase, of company stock within a 6-month period. Section 16(b) suits must be brought within "two years after the date such profit was realized." In 2007, Simmonds filed 55 virtually identical Section 16(b) suits against banks who had underwritten various initial public offerings in the late 1990's and 2000. She alleged that the underwriters had worked with the issuers' insiders to inflate the aftermarket prices of stocks above their IPO prices. She further alleged that since the underwriters and insiders – as a group – owned more than 10% of the company's shares, they were all subject to the reporting requirements of Section 16(a) and to disgorgement under Section 16(b). None of the underwriters had filed the forms mandated by Section 16(a). The District Court dismissed the suits on the ground that Section 16(b)'s 2-year statute of limitations had long expired. The Ninth Circuit reversed, holding first, that Section 16(b)'s limitations period is subject to tolling, and second, that the period is tolled until the insider discloses his transactions in a Section 16(a) filing.
The Court, led by Justice Scalia, roundly disagreed with the second part of the Ninth Circuit's holding, 8-0. (The Chief sat this one out.) Starting with the text, Section 16(b)'s 2-year clock starts from "the date such profit was realized," not from the filing of a Section 16(a) disclosure. The Ninth Circuit's rule was also inequitable. It would allow plaintiffs to file suit years after they actually knew facts about alleged short-swing profits, simply because the defendants hadn't filed a Section 16(a) disclosure. The Ninth Circuit's rule would be particularly unfair where, as in this case, the theory of Section 16(b) liability was so novel that the defendants could plausibly claim that they were not aware they were required to file a Section 16(a) disclosure. (In a footnote, the Court also rejected the Second Circuit's rule that the 2-year period is tolled until the plaintiff gets actual notice of insiders' short-swing profits, as divorced from usual equitable-tolling principles.) With the Chief Justice on the sidelines, however, the Court was evenly split on the threshold question – answered in the affirmative by the Ninth Circuit – of whether Section 16(b) was subject to tolling at all. We don't know the breakdown, but the result is that the case will go back to the lower courts to apply the usual rules of equitable tolling to the facts of the case.
In Roberts v. Sea-Land Services, Inc. (10-1399), the Court held 8-1 that the Longshore and Harbor Workers' Compensation Act (LHWCA) caps disability benefits based on the year in which an employee becomes disabled, and not on whether or when a formal compensation order is issued on his behalf. The LHWCA compensates employees for injuries occurring upon the navigable waters of the United States. Benefits are capped at twice the national average weekly wage for the fiscal year in which the employee is "newly awarded compensation." Most employers pay benefits voluntarily, without formal administrative proceedings. Only a small minority of cases proceed to a hearing before an administrative law judge, who then issues a compensation order. Petitioner Dana Roberts slipped and fell on a patch of ice at Sea-Land's marine terminal in Alaska in 2002, and did not return to work. Sea-Land voluntarily paid him benefits until 2005. Roberts filed a formal claim, and in 2007, an ALJ awarded him benefits at the maximum rate based on the year he was injured, 2002. Roberts moved for reconsideration, arguing that the ALJ should have based the maximum rate on the year he was "newly awarded compensation" by the ALJ's order, 2007. (The difference was $966 versus $1144 per week.) The ALJ rejected Roberts' argument, as did the Department of Labor's Benefits Review Board, the Ninth Circuit, and the Court.
Writing for all the Justices except Ginsburg, Justice Sotomayor found that the language, "newly awarded compensation," could go either way. "Award" most often means "give by judicial decree," but it can also mean "grant," or "confer or bestow upon." The LHWCA "grants" benefits to disabled employees, and so can be said to "award" them compensation by force of its entitlement-creating provisions – with or without a judicial decree. The Court found that only the second interpretation fit with the LHWCA's overall statutory scheme. The statute requires employers to pay benefits voluntarily, and in fact, most do. It would be strange to say that the vast majority of beneficiaries haven't been "awarded compensation" simply because they don't have a court order in hand. Also, there would be no way to determine their applicable statutory cap. The Court rejected Robert's clever proposal to require orders in every case as "a solution in search of a problem," adding that "[c]onstruing any workers' compensation regime to encourage gratuitous confrontation between employers and employees strikes us as unsound." Applying the national average weekly wage at the time of the onset of disability avoids disparate treatment of similarly situated employees, and discourages employees from gaming the claims process by making later (or even repeated) claims to obtain new "award" orders. Finally, the requirement that employers pay interest sufficiently deters employers from wrongfully withholding and contesting benefits, without punishing those who voluntarily pay at the proper rate from the time of their employees' injuries.
Justice Ginsburg concurred in part, and dissented in part. Like the Court, she rejected Petitioner Robert's argument that an employee is "newly awarded compensation" only in the year she receives a formal compensation award. The LHWCA contemplates that employees may be given or "awarded" benefits voluntarily or by order. Unlike the Court, however, Justice Ginsburg did not read the LHWCA to "award" benefits as soon as an employee becomes disabled, by virtue of the statutory entitlement. After all, no person who slips and hurts herself on a negligently maintained sidewalk would tell her friends the next day, "Guess what, I was newly awarded damages yesterday." Justice Ginsburg would hold that an injured worker is "newly awarded compensation" only when (1) an employer voluntarily undertakes to pay benefits, or (2) when an ALJ or court issues an order. In Ginsburg's view, this approach is more consistent with the LHWCA's goal of encouraging employers to pay legitimate claims promptly.
In addition to its recent opinions, the Court has granted cert in the following cases:
Florida v. Clayton (11-817), which asks: "Whether the Florida Supreme Court has decided an important federal question in a way that conflicts with the established Fourth Amendment precedent of th[e] Court by holding that an alert by a well-trained narcotics detection dog certified to detect illegal contraband is insufficient to establish probable cause for the search of a vehicle?"
Moncrieffe, v. Holder (11-702), which asks: "Whether a conviction under a provision of state law that encompasses but is not limited to the distribution of a small amount of marijuana without remuneration constitutes an aggravated felony, notwithstanding that the record of conviction does not establish that the alien was convicted of conduct that would constitute a federal law felony." The Immigration and Nationality Act provides that an alien who is convicted of an "aggravated felony" is deportable.
Arkansas Game and Fish Comm'n v. United States (11-597), which asks: "Whether government actions that impose recurring flood invasions must continue permanently to take property within the meaning of the Takings Clause." In this case, the Army Corps of Engineers allegedly caused six consecutive years of flooding that harmed the State's timber growth, but eventually stopped.
The Court has also asked the Solicitor General for his view on the following petitions:
American Trucking Assn., Inc. v. Los Angeles (11-798), concerning 49 U.S.C. § 14501(c)(1), which provides that "a State [or] political subdivision . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of any motor carrier . . . with respect to the transportation of property," and contains an exception providing that the express preemption clause "shall not restrict the safety regulatory authority of a State with respect to motor vehicles." The petition raises three questions: (1) whether an "unexpressed ‘market participant' exception" exists in Section 14501(c)(1), so as to "permit a municipal governmental entity to take action that conflicts with the express preemption clause, occurs in a market in which the municipal entity does not participate, and is unconnected with any interest in the efficient procurement of services;" (2) whether "a required concession agreement setting out various conditions a motor carrier must meet to serve a particular port imposes any requirements that are ‘related to a price, route, or service of any motor carrier'" for the purposes of preemption under Section 14501(c)(1);" and (3) whether "permitting a municipal governmental entity to bar federally licensed motor carriers from access to a port operates as a partial suspension of the motor carriers' federal registration, in violation of Castle v. Hayes Freight Lines, Inc., 348 U.S. 61 (1954)."
Tarrant Regional Water District v. Herrmann (11-889), which would ask: "(1) Whether Congress's approval of an interstate water compact that grants the contracting states ‘equal rights' to certain surface water and . . . provides that the compact shall not ‘be deemed . . . to interfere' with each state's ‘appropriation, use, and control of water . . . not inconsistent with its obligations under this Compact,' manifests unmistakably clear congressional consent to state laws that expressly burden interstate commerce in water; and (2) whether a provision of a congressionally approved multi-state compact that is designed to ensure an equal share of water among the contracting states preempts protectionist state laws that obstruct other states from accessing the water to which they are entitled by the compact."
Bowman v. Monsanto Co. (11-796), concerning patent exhaustion, which "delimits rights of patent holders by eliminating the right to control or prohibit use of the invention after an authorized sale." The petition asks: "Whether the Federal Circuit erred by (1) refusing to find patent exhaustion in patented seeds even after an authorized sale and by (2) creating an exception to the doctrine of patent exhaustion for self-replicating technologies?"
For everyone who has made it through this Update of rather technical decisions and SG invites – congratulations! – you are now up to date with all of the Court's recent opinions and orders. As always, thanks for reading.
Kim and Jenny