Supreme Court Update: Digital Realty Trust, Inc. v. Somers (16-1276), Rubin v. Islamic Republic of Iran (16-534), Murphy v. Smith (16-1067)

March 9, 2018 Supreme Court Update

Greetings, Court Fans!

We're back with Part I of our catch-up series, including summaries of the Court's decisions in Digital Realty Trust v. Somers (No. 16-276), Rubin v. Islamic Republic of Iran (No. 16-534), and Murphy v. Smith (No. 16-1067), three cases concerning statutory construction, tied together (in a sense) by three separate opinions from Justice Sotomayor that reflect in different ways on the use and enjoyment of legislative history.

First up, in Digital Realty Trust, Inc. v. Somers (No. 16-1276), the Court unanimously concluded that the Dodd-Frank Act's anti-retaliation provision applies only to whistleblowers who report violations of the securities laws to the SEC, and not to those who merely report violations up the chain of command in their own organizations.

Congress first established statutory whistleblower protections in the Sarbanes Oxley Act of 2002, which protects employees who report violations of the securities laws to the SEC or other federal agencies, or to an "internal supervisor" within their companies. However, to recover for a retaliation claim under Sarbanes Oxley, a whistleblower must first exhaust administrative remedies by filing a complaint with the Secretary of Labor within 180 days of the retaliatory act. In the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act, Congress sweetened the pot for whistleblowers by making them eligible for an award if information they provide to the SEC leads to a successful enforcement action. Dodd-Frank also protects whistleblowers from retaliation and permits plaintiffs to file suit directly in federal court (with no exhaustion requirement) within six years of the retaliation. However, Dodd-Frank contains a narrower definition of "whistleblower" to include "any individual who provides . . . information relating to a violation of the securities laws to the [SEC]" with no reference to internal reporting.

These differences (and the differing incentives they provide to whistleblowers and their lawyers) give rise to the issue before the Court in Somers. Paul Somers reported suspected securities-law violations to senior management at Digital Realty, the company he worked for, but did not report his suspicions to the SEC. He later claimed that he was terminated for blowing the whistle within his company and filed a whistleblower-retaliation suit, but he failed to file an administrative complaint with the Department of Labor, thereby rendering him ineligible for relief under Sarbanes Oxley. Digital Realty sought to dismiss his suit, arguing that Dodd-Frank does not extend to whistleblowers, like Somers, who do not report suspected violations to the SEC, but the District Court and the Ninth Circuit rejected that argument, finding that the statutory scheme was ambiguous and that it would be absurd to read the statute to exclude whistleblowers like Somers from its scope.

The Supreme Court reversed, in mostly unanimous form. Writing for the Court, Justice Ginsburg concluded that there was nothing ambiguous about Dodd-Frank's definition of "whistleblower," and therefore invoked the rule that the Court must follow an explicit statutory definition even if it varies from the ordinary meaning of a term. Dodd-Frank expressly defines a "whistleblower" as "any individual who provides . . . information relating to a violation of the securities laws to the Commission," and it makes clear that the definition applies throughout the anti-retaliation section of the statute. (In contrast, a separate section of Dodd-Frank includes a different "whistleblower" definition, which does not require a report to the SEC.) Though the statutory definition alone "resolves the question," Justice Ginsburg went on to describe how Dodd-Frank's "purpose and design" also supported the Court's narrow reading of the anti-retaliation provision's scope. While Sarbanes-Oxley was intended generally to disrupt the "corporate code of silence," Dodd-Frank's whistleblower provision was intended specifically "to motivate people who know of securities law violations to tell the SEC." Thus, it makes sense that Dodd-Frank's stronger inducements and protections (including double backpay on top of actual damages) would be limited to those who provide actionable information to the SEC. Ginsburg rejected Somers's argument (joined by the Solicitor General) that Dodd-Frank's narrow whistleblower definition only applies to its award program, and not the anti-retaliation provision. Though the Court's narrow reading certainly excludes many whistleblowers from protection under Dodd-Frank, there is nothing absurd about that result: Congress sought to induce whistleblowers to report violations to the SEC. Any whistleblower who reports to a supervisor can still obtain Dodd-Frank's award and protection if she also reports to the SEC, even she is retaliated against for the internal report. In light of Dodd-Frank's specific purpose, there was no reason for the Court to stray from the plain meaning of the statute's narrow definition. And because that definition is clear and precise, the Court accorded no deference to the SEC's more expansive definition of the term in its own regulations.

The entire Court joined in Justice Ginsburg's straight-forward textual analysis, but there was a bit of a kerfuffle over the role of legislative history in the analysis. Joined by Justices Alito and Gorsuch, Justice Thomas wrote separately to underscore that the case could and should be decided based solely on the plain text of the anti-retaliation provision's whistleblower definition. There was no need, in Thomas's view, to discuss "the supposed purpose of the statute," which Justice Ginsburg purported to derive from a single Senate Report. This prompted a rejoinder from Justice Sotomayor, who penned another concurrence, joined by Justice Breyer, specifically to rebut the suggestion that relying on legislative history is an inappropriate method of statutory construction. "Just as courts are capable of assessing the reliability and utility of evidence generally, they are capable of assessing the reliability and utility of legislative-history materials."

Notwithstanding her defense of legislative history in Digital Realty Trust, Justice Sotomayor stuck mostly to the text in Rubin v. Islamic Republic of Iran (No. 16-534), in which her opinion for a unanimous court resolved a recently emerged circuit split over the attachment of foreign states' property to recover judgments won by the victims of state-sponsored terrorism. But before we get to the dry textual analysis, let's begin with the dramatic background. In 1997, Hamas carried out a series of suicide bombings in Jerusalem. U.S. citizen plaintiffs who were injured in the attack sued Iran, alleging that it was responsible for the bombings because it had provided support and training to Hamas. As often happens in such state-sponsored terrorism cases, Iran did not appear, so the District Court entered a default judgment in the plaintiffs' favor for $71.5 million. Then came the hard part: collecting against a state that has almost no commercial ties with the U.S. As part of this effort, the plaintiffs brought suit in the Northern District of Illinois, seeking to attach a collection of approximately 30,000 clay tablets known as the Persepolis Collection, which Iran had loaned to the University of Chicago in 1937 and remain in the University's possession to this day.

Now things get a bit dry: The Foreign Sovereign Immunities Act ("FSIA") regulates not only the immunity of foreign states and their agencies and instrumentalities (such as state-owned corporations); it also regulates the attachments of their assets on a judgment issued against them. As with substantive immunity, the FSIA's attachment provisions provide that the property of foreign states and their instrumentalities is immune from attachment unless an enumerated exception is met. One of these exceptions, 28 U.S.C. § 1610(a)(7), allows for the attachment of foreign states' property based on a state-sponsored terrorism judgment such as the one in Rubin, but it's limited to property "used for a commercial activity in the United States." That exception doesn't apply to the Persepolis Collection (or at least so the Seventh Circuit would later hold), because loaning a collection of ancient artifacts to a university in the United States for scholarly study isn't commercial activity. So the plaintiffs turned to another provision, Section 1608(g), which was added by Congress in 2008.

Drier still: Prior to 2008, the FSIA's attachment provisions did not address when the property of a foreign state's agency or instrumentality could be attached to satisfy a judgment entered against the foreign state itself. The Supreme Court addressed that issue in a 1983 decision with a long name, commonly referred to as Bancec, 462 U.S. 611 (1983), holding that agencies and instrumentalities that are legally separate from their sovereign states should be presumed to be separate for attachment purposes too. But that presumption of separateness could be rebutted by showing that the agency or instrumentality was not really distinct from the foreign state, and to define when that was so, the courts of appeals established five factors, known as the Bancec factors. In 2008, Congress overhauled the FSIA's provisions regarding suits against state sponsors of terrorism, and part of that overhaul included the creation of Section 1610(g). It provides that the property of foreign states against which a state sponsor of terrorism judgment is entered and the property of agencies or instrumentalities of that state—including instrumentalities that are legally separate—"is subject to attachment in aid of execution, and execution, upon that judgment as provided in this section, regardless of" five specific factors. In an amazing coincidence, those five factors courts couldn't consider just happened to be the exact Bancec factors established by the courts of appeal.

Everyone agreed that this provision overruled Bancec for judgments against state sponsors of terrorism, meaning that the property of agencies or instrumentalities of foreign states against which such a judgment is entered could be attached even if the Bancec factors were not met. But that was no help to the Rubin plaintiffs: They were trying to attach the property of Iran itself (not some agency of Iran) and the obstacle to that attachment was that the Persepolis Collection was not being used for commercial purposes, as Section 1610(a)(7) required. But, they argued, Section 1610(g) didn't just overrule Bancec; it also said that the property of foreign states (and their agencies) "is subject to attachment in aid of execution," which, they argued, created an independent exception to attachment immunity for judgments against state sponsors of terror. And that independent exception would help the plaintiffs, because Section 1610(g) said nothing about commercial property, allowing them to attach Iranian property in the United States that was not being used for commercial purposes, like the Persepolis Collection. The Second, Ninth, and D.C. Circuits had agreed with this argument in similar cases (though, admittedly, ones where the issue was not raised in the most direct manner). But the Seventh Circuit disagreed. At the urging of the United States (which favored the Seventh Circuit's reading), the Supreme Court granted certiorari to resolve this split.

For Justice Sotomayor, writing for a unanimous court (with Justice Kagan recused), the key was that Section 1608(g) provided for attachment "as provided in this section." The most natural reading of that phrase is that it referred to Section 1610 as a whole, meaning that Section 1610(g) only comes into play when some other provision of Section 1610 allows the property at issue to be attached. It did not, then, create its own free-standing exception to attachment immunity. Further, if that is what Congress intended, it chose an inscrutable way to achieve its purpose: Because the FSIA is written against a backdrop of presumed immunity, the other exceptions to immunity are usually written in the most explicit way possible. Justice Sotomayor also made quick work of various counter-arguments by the plaintiffs, none of which are all that noteworthy. More noteworthy, perhaps, is the fact that—despite issuing a vocal defense of legislative history in her Somers concurrence—Justice Sotomayor's opinion for the court in Rubin didn't rely on legislative history at all. Although Section 1610(g)'s history makes it rather obvious that Congress intended only to overrule Bancec and not to create some free-standing exception that would render various other provisions of the section superfluous, Sotomayor's opinion does not linger on that congressional purpose, relying entirely on the text itself. Such, it seems, is the price of unanimity.

The Court was unable to achieve unanimity in the third statutory-construction decision of the day, Murphy v. Smith (No. 16-1067). At issue was the meaning of 42 U.S.C. § 1997e(d)(2), the apportionment provision of the Prison Litigation Reform Act. That section kicks in when a prisoner prevails in a civil-rights suit. In that event, "a portion of the judgment (not to exceed 25 percent) shall be applied to satisfy the amount of attorney's fees awarded against the defendant." The question before the Court in Murphy was whether a district court can apply less than 25% of the judgment to attorney's fees. As Justice Gorsuch put it in his majority opinion: "Does the [. . .] sentence allow the district court discretion to take any amount it wishes from the plaintiff's judgment to pay the attorney, from 25% down to a penny? Or does [it] instead mean that the court must pay the attorney's entire fee award from the plaintiff's judgment until it reaches the 25% cap and only then turn to the defendant?"

To answer this question, Justice Gorsuch pulled out four dictionaries and a host of other analogies and lexicological references and determined that the word "satisfy" in the apportionment provision must mean "fully satisfy." In other words, the statute mandates that "the court (1) must apply judgment funds toward the fee award (2) with the purpose of (3) fully discharging the fee award"—up to the 25% cap. In reaching this conclusion, the majority was undeterred by the potentially discretionary connotations of the phrase "a portion," as well as discretionary language in the main fee-shifting statute in civil rights cases. Notably, Justice Gorsuch never even mentioned the PLRA by name or discussed the specific context of the case, and he certainly didn't discuss legislative history.

Justice Sotomayor filled in some of these blanks in her dissenting opinion on behalf of the more liberal justices. She explained that the PLRA severely curtails prisoners' ability to bring federal civil-rights lawsuits, and that Murphy suffered permanent damage to his eye socket after being hit, choked, and pushed into a toilet by two guards at an Illinois state prison. She also noted the broader context: "In the vast majority of prisoner-civil-rights cases, the attorney's fee award exceeds the monetary judgment awarded to the prevailing prisoner-plaintiff." Given this, Justice Sotomayor found it "hard to believe, as the majority contends, that Congress used ‘applied to satisfy' to command an effort by district courts to ‘discharge . . . in full,' when in most cases, full discharge will never be possible." In support, Sotomayor cited the legislative history of §1997e(d)(2), arguing that "Congress considered and rejected language prior to enacting the current attorney's fee apportionment provision that would have done just what the majority claims." All in all, she concluded that the majority had missed the "distinction between cabining and eliminating discretion." According to Sotomayor, the idea behind the statute's use of phrases like "applied to satisfy," "portion," and "not to exceed" was to reinforce district courts' discretion—albeit limited—in allocating fee awards, as supported by the PLRA's legislative history and practical context.

There you have it: Three opinions, three hot takes on legislative history from Justice Sotomayor. That should be enough to get you through the weekend. We'll be back in your inboxes Monday morning with Part II of our February-sitting catch-up, featuring Class v. United States, Jennings v. Rodriguez, and Patchak v. Zinke.