Supreme Court Update: Expressions Hair Design v. Schneiderman (15-1391); Moore v. Texas (15-797; Goodyear Tire & Rubber Co. v. Haeger (15-1406) and McLane, Inc. v. EEOC (15-1248)

April 21, 2017 Supreme Court Update

Greetings, Court Fans!

The Eight are Nine again. After over a year of operating short-handed, the Court is finally at full strength, as Justice Neil Gorsuch joined his colleagues on the bench this week to hear arguments for the first time. Meanwhile, we at the Update have felt a bit short-handed ourselves, but we're back to bring you up to speed on a number of decisions that predate the junior Justice's arrival: Expressions Hair Design v. Schneiderman (15-1391), addressing a First Amendment challenge to New York's credit/cash pricing law; Moore v. Texas (15-797), on the standard for assessing mental disability for purposes of determining whether an inmate should be spared execution; and, on a more practical level, Goodyear Tire & Rubber Co. v. Haeger (15-1406), on what monetary sanctions may be awarded for discovery misconduct; and McLane, Inc. v. EEOC (15-1248), on the proper standard of review of a district court's decision to enforce or quash a subpoena issued by the EEOC.

Litigants appear to have learned that the Court likes the First Amendment (a lot) and their lawyers are crafting novel challenges accordingly. In Expressions Hair Design v. Schneiderman (No. 15-1391), plaintiffs brought a First Amendment challenge to New York Business Law § 518, which bars a seller from "impos[ing] a surcharge on a [purchaser] who elects to use a credit card in lieu of payment by cash, check or similar means." Now, one might think that § 518 simply prohibits a merchant from charging a different price for credit purchases than for cash purchases, a price regulation that would likely be interpreted to regulate only "conduct" and not speech protected by the First Amendment. However, while that is one possible interpretation of the law, prior federal law upon which the NY law was modeled applied differently, allowing a merchant to charge a different lower price for cash purchases (a "discount"), but prohibiting merchants from charging a higher price for credit (a "surcharge"). Under that interpretation, a merchant could permissibly list a price as $103, and advertise a $3 discount for paying with cash, but could not list the price as $100 plus a $3 surcharge if paying with credit—notwithstanding that the economic effect of the pricing is the same. Merchants brought an as-applied challenge, arguing that in the context of a single sticker price system (a sticker advertising a single price plus a credit surcharge), the law impermissibly burdened their speech by proscribing how they could communicate their pricing. Many merchants wish to use this method of describing their prices because they must pay a fee on all credit transactions and they want to let consumers know that this increases prices and to impose the increase only on their credit customers.

The Second Circuit concluded that § 518 regulated prices, not speech, and upheld it. Led by the Chief, the Court reversed. The Court first provided some background on the federal surcharge ban, which predated the NY law. That federal law was explicit in defining the "regular" price as the posted price and allowing merchants to offer a "discount" from that price for paying with cash but prohibiting charging more than the regular posted price for credit, i.e., a "surcharge." Under that law, two-sticker pricing (posting a separate price for cash and for credit) was allowed, as was the posting of a single price and providing a cash discount. The only pricing system that was prohibited was posting a single cash price and indicating that there would be a surcharge for the use of credit. When the federal credit surcharge ban expired in 1984, New York quickly passed § 518, which tracked the federal law very closely, but unlike the federal law, § 518 failed to define the terms "surcharge" or "regular price." Given the history, it was reasonable to conclude, as the Second Circuit did, that § 518 was intended – like the federal law – to permit cash discounts, but prohibit credit surcharges. Accordingly, the law didn't really regulate prices at all, as merchants were permitted to charge whatever price they liked for cash and credit purchases. It simply regulated how they could describe those prices. Thus, it was a speech regulation and should have been analyzed as such. The Court therefore remanded for the Second Circuit to analyze the law under the proper framework in the first instance.

Justice Breyer concurred in the judgment only. In his view, the speech/conduct dichotomy is not particularly helpful because virtually all human conduct occurs through speech. Instead, the level of review should be determined by how the law burdens interests protected by the First Amendment. Under this rubric, if a challenged law affects political discourse or public opinion, it should be subject to strict scrutiny. If a challenged rule affects the informational function of truthful commercial speech, it should be subject to lesser, though still heightened scrutiny. Finally, where a regulation simply requires disclosure of uncontroversial factual information, a still lower standard should apply, requiring only that the regulation be reasonably related to the State's interest in preventing consumer deception. Unfortunately, § 518 is unclear, and that lack of clarity might affect the proper standard of review. If § 518 requires merchants to charge the same price for cash or credit, then it would be subject to only rational basis review. Likewise, the law may permit increased pricing for credit purchases and describing that increase as a credit surcharge, but simply require that the merchant post the separate credit price in that instance. Here too, Breyer would conclude that the law is subject only to rational basis review because it is, in effect, a disclosure requirement. However, if the law actually applies to ban the description of the credit price increase as a surcharge, then it would be subject to higher scrutiny as a restriction on truthful commercial speech. On remand, Breyer suggested the Second Circuit should consider certifying the proper interpretation of § 518 to the New York Court of Appeals.

Justice Sotomayor also concurred only in the judgment. In her view, the case should not proceed without a definitive interpretation of § 518. Accordingly, she would remand with a firm instruction to the Second Circuit to certify the issue to the New York Court of Appeals. Justice Sotomayor went on to extol the virtues of certification as a means of deciding federal cases that turn on questions of state law. (For CA2 watchers, Sotomayor's paean to certification may evoke memories of the frequent, and sometimes surprisingly fierce, debates on that issue at her former court over the years. The highlight (or maybe lowlight) of that continuing imbroglio came early in Sotomayor's residency at Foley Square when one of her colleagues accused another of "verbosely crusad[ing] for more extensive use of the certification process" without considering the burden certification imposes on state courts. Tunick v. Safir, 209 F.3d 67, 99 (2d Cir. 2000)).

State law was also at issue in Moore v. Texas (15-797), where the Court rebuked the Texas Court of Criminal Appeals (the State's highest court in criminal matters) for clinging to an outdated and unscientific standard for determining whether a death-row inmate should be spared execution due to mental disability.

In Atkins v. Virginia (2002), the Court held that the Eighth Amendment prohibits the execution of people with mental disabilities, but left the States with "some flexibility" in determining which inmates qualify as mentally disabled. The Texas Court of Criminal Appeals (CCA) first addressed this question in Ex Parte Briseno (2004), which adopted a definition of intellectual disability from the 1992 edition of the American Association on Mental Retardation (AAMR) manual and set forth seven evidentiary factors, derived from neither medical nor judicial authority, which it deemed relevant to the intellectual-disability inquiry. The Briseno standard came to be known as the "Lennie standard," because the seven factors were essentially meant to spare individuals like Lennie Small, the well-meaning but dim-witted farmhand in Steinbeck's Of Mice and Men. In other words, the CCA's standard was derived from a 1992 definition of "mental retardation" and . . . fiction.

Petitioner Bobby James Moore was convicted of capital murder and sentenced to death for fatally shooting a store clerk during a botched robbery in 1980, when he was 20 years old. After his case wound its way through various appeals and a resentencing over the course of thirty-odd years, a state habeas court finally heard his Atkins challenge in 2014. In evaluating Moore's claim of intellectual disability, the habeas court consulted the most up-to-date mental diagnostic standards, relying on the 11th edition of the AAMR manual instead of the 1992 edition and "followed the generally accepted, uncontroversial intellectual-disability diagnostic definition," which identifies three core elements: (1) intellectual-functioning deficits, as indicated by an error-adjusted IQ score of roughly 70 or below; (2) "adaptive deficits," meaning the inability to learn basic skills and adjust behavior to changing circumstances; and (3) the onset of these deficits while still a minor. Applying these standards, the state habeas court recommended that the CCA (which is the ultimate factfinder in state habeas proceedings) reduce Moore's sentence. The CCA rejected that recommendation, however, finding that the lower court had erred by applying modern standards rather than the standard set forth in Briseno. Applying the Briseno standard, the CCA concluded that Moore had failed to show significantly subaverage intellectual functioning.

The Supreme Court vacated the CCA's judgment, in a 5-3 opinion authored by Justice Ginsburg. While the majority acknowledged that Atkins left states with discretion to determine appropriate ways of enforcing its restriction on executing the intellectually disabled, that discretion is not "unfettered" and it must be "informed by the medical community's' diagnostic framework." Given that instruction, the CCA's rejection of the medical community's more recent consensus on how to diagnose intellectual disability could not be countenanced. "Moreover, the several factors Briseno set out as indicators of intellectual disability are an invention of the CCA untied to any acknowledged source. Not aligned with the medical community's information, and drawing no strength from our precedent, the Briseno factors create an unacceptable risk that persons with intellectual disability will be executed" in violation of the Eighth Amendment. The Court therefore held that the Briseno factors could not be used and remanded Moore's case for further proceedings consistent with the requirement that the "medical community's diagnostic framework" be used in determining whether an inmate on death row is intellectually disabled, precluding execution.

The Chief, joined by Justices Thomas and Alito, dissented. Perhaps surprisingly, the dissenters agreed with the majority that the Briseno factors "are an unacceptable method of enforcing the guarantee of Atkins" that intellectually disabled inmates be exempt from the death penalty. However, they objected to the Court's exaltation of "medical consensus" in determining the scope of the Eighth Amendment's protections. "[C]linicians, not judges should determine clinical standards; and judges, not clinicians should determine the content of the Eighth Amendment."

Climbing down from its ivory tower, the Court got its hands dirty addressing discovery sanctions in Goodyear Tire & Rubber Co. v. Haeger (15-1406). The Haeger family claimed that a defective Goodyear tire caused their motorhome to swerve off the road and flip over. The Haegers claimed that the tire was not designed to withstand the heat that would be generated by use on a motorhome at highway speeds. Goodyear, for its part, argued that the Haegers' tire, which had already traveled more than 40,000 miles, failed because it hit road debris. After several years of litigation, during which the Haegers repeatedly sought Goodyear's internal testing reports on the tire without result, the case settled on the eve of trial. Shortly after the settlement was concluded, the Haegers' attorney learned that Goodyear disclosed internal test results in another case showing that the tire got unusually hot at highway speeds. The Haegers promptly sought sanctions for discovery fraud, seeking an award all of their fees and costs incurred from the date of Goodyear's first "dishonest" discovery response. While the district court acknowledged that there must usually be a causal link between the expenses sought and the sanctionable conduct, in this "egregious" situation, it found no such link necessary and awarded the Haegers $2.7M—every penny they incurred after Goodyear's initial inadequate discovery responses. In the alternative (i.e., in the event its egregious circumstance exception to the causal link rule was not accepted on appeal), the district court found that $2M of the fees and costs were causally connected to the misconduct in that those costs did not relate to claims against other defendants or to plaintiff's development of medical evidence to support their own damages claims. The Ninth Circuit affirmed the $2.7M award in full.

Justice Kagan wrote for a unanimous Court, reversing. Monetary sanctions for discovery abuse are intended to be compensatory, not punitive, she explained. Accordingly, a district court awarding such sanctions must determine which fees were incurred because of, and solely because of, such misconduct. If fees would have been incurred regardless of the misconduct, then they may not be awarded. This will ordinarily require a court to analyze each category of expense and allocate it, though the Court acknowledged that the goal is "rough justice" not a perfect accounting.

Here, both the district and appellate courts erred by failing to require a "but for" causal link between the expenses awarded and the misconduct. While discovery abuse might, in an unusual case, permit a full award of fees from a particular point in time, the test was not how egregious the violation was, but whether all fees from that point forward would not have been incurred but for the misconduct. The Haegers argued that their case met this standard because the case would have settled much earlier had the test results been produced. But the Court rejected that argument too, finding that there was no evidence that the case would have settled immediately upon production of the test reports given that Goodyear still had defenses to the claim. Indeed, Goodyear went to trial in the other case where the test results were produced, undercutting any such argument. The Court also refused to adopt the district court's alternative holding awarding $2M, explaining that it was unclear whether the district court applied the causal link standard properly.

The Court continued its romp in the discovery trenches in McLane v. EEOC (15-1248), where the Justices addressed the not-so-heady question of whether a district court's order enforcing or quashing a subpoena issued by the EEOC is reviewed de novo or for abuse of discretion. Here's a clue: the case was accepted from the Ninth Circuit (one of the most reversed circuits in the nation), which was the sole Circuit to conclude that review was de novo. Okay, maybe that was a giveaway. In any event, the Court's analysis was brief. Where there is no explicit statutory command, the level of appellate review is determined primarily based on two factors: (1) historical tradition; and (2) judicial competence—i.e., which judicial actor is better positioned to decide the issue. Here, both pointed to a deferential review standard. First, appellate courts had a longstanding practice of reviewing orders enforcing or quashing administrative subpoenas for abuse of discretion. Second, district courts are better positioned to make fact-specific determinations of issues such as relevance and undue burden – issues they face on a daily basis in other contexts. The Court noted that while the district court itself did not need to "defer" to the EEOC's own determination of relevance, it should approach the issue fully "cognizant of the agency's broad power to seek and obtain evidence." In this context, relevant evidence should be understood "generously." Having concluded that the Ninth Circuit applied an improper standard of review, the Court remanded for application of the correct one.

Justice Ginsburg concurred in part and dissented in part. She agreed generally that abuse of discretion review was proper where factual questions were involved. However, she felt that the Ninth Circuit's determination that the district court erred here in quashing the EEOC's subpoena should be affirmed because the district court's determination appeared to be based on legal error—which is reviewed de novo. Specifically, Justice Ginsburg believed that the district court improperly denied the subpoena on the basis that the evidence sought was not yet "necessary," a criteria she felt had no place in the determination. Accordingly, she would have affirmed the Ninth Circuit.

Since our last Update, the Court also granted cert in two new cases:

Jesner v. Arab Bank, PLC (16-499), which will hopefully resolve a question the Court left undecided just a few years back in Kiobel v. Royal Dutch Petroleum Co. (2013): "Whether the Alien Tort Statute, 28 U.S.C. § 1350, categorically forecloses corporate liability."

Ayestas v. Davis (16-6795), which asks "Whether the Fifth Circuit erred in holding that 18 U.S.C. § 3599(f) withholds "reasonably necessary" resources to investigate and develop an IAC claim that state habeas counsel forfeited, where the claimant's existing evidence does not meet the ultimate burden of proof at the time the § 3599(f) motion is made."

That's all for now. We'll be back soon to wrap up a few more decisions.