Supreme Court Update: Knox v. Service Employees Int'l Union, Local 1000 (10-1121), FCC v. Fox Television Stations, Inc. (10-1293), and American Tradition Partnership, Inc. v. Bullock (11-1179)

July 11, 2012 Supreme Court Update

Greetings, Court fans!

Today we bring you our last Update of the October 2011 Term. As always, the end is bittersweet, but we look forward to a 2012 Term likely to be filled with hot-button social issues, such as affirmative action and same-sex marriage. This last hurrah covers: Knox v. Service Employees Int'l Union, Local 1000 (10-1121), finding that public employee unions cannot impose special assessments for political expenditures on non-members without first providing notice and requiring nonmembers to affirmatively consent to the assessment; FCC v. Fox Television Stations, Inc. (10-1293), holding that the FCC failed to give Fox and ABC fair notice that it would penalize isolated expletives and fleeting nudity before it did so; and American Tradition Partnership, Inc. v. Bullock (11-1179), reaffirming the Court's controversial Citizens United decision.

Knox v. Service Employees Int'l Union, Local 1000 (10-1121) addressed the circumstances under which a public-sector union may impose a special assessment on nonmembers. Under California law, employees in a bargaining unit may decide by majority vote to establish an "agency shop," where all workers will be represented by the Union for bargaining purposes. An employee in the unit may opt not to join the union, but must still pay a fee to cover the union's bargaining-related expenses. This fee has been justified as a means of addressing a free rider problem – i.e., employees in an agency shop generally benefit from any enhanced compensation or benefits negotiated by the union, whether or not they are union members. While public-sector unions may bill nonmembers for bargaining expenses, the Court held in Abood v. Detroit Board of Education (1977) that the union may not require nonmembers to fund the union's political and ideological agenda, with which nonmembers may disagree. In Teachers v. Hudson (1986), the Court also explained that a union's payment procedures may not have the effect of requiring nonmembers to loan money to the union for political and ideological purposes, but that for administrative convenience, a union could calculate its annual fee based on its ratio of expenses in the preceding year. For example, if bargaining expenditures accounted for 60% of total expenses last year, the union could assume that they would be the same percentage for the next year.

In this case, SEIU sent out a notice in June 2005 indicating its regular annual fee for the year and allowing any nonmembers to opt-out of paying the non-bargaining portion of the fee (approximately 44% of the total) within 30 days. The notice stated that the fee was subject to increase at any time. Around the same time, California was engaged in a heated political debate about growing State budget deficits, particularly the growing costs of public-sector employees. The same month, California's Governor called for a special election to vote on ballot propositions, including one that would require unions to obtain the affirmative consent of nonmembers to bill them for political/ideological expenditures (instead of the opt-out method used here), and a second that would limit state spending and give the Governor authority to reduce appropriations for public-employee compensation. In August, after the 30-day deadline for nonmembers to object to the annual fee had elapsed, SEIU temporarily increased union fees by 25% for the express purpose of building a "Political Fight-Back Fund" to defeat the two ballot initiatives and to elect a more favorable governor and legislature. Petitioners brought a class-action lawsuit on behalf of 28,000 nonunion employees who were forced to contribute to the Political Fight-Back Fund. Some of the class members had objected to paying the political/ideological portion of the regular annual dues; some had not. Those who had objected argued that they should not have to pay any portion of the special Political Fight-Back Fund since they had already refused to fund the Union's political mission and the Fund was ear-marked for political purposes. Those who had not objected to the annual fee argued that they should have received a fresh notice and opportunity to opt-out of participation in the special assessment. The district court found for petitioners on summary judgment, but a divided panel of the Ninth Circuit reversed.

The Court split-5-2-2, with 7 Justices voting to overturn the Ninth Circuit's decision. Justice Alito authored the Court's opinion, joined by the rest of the conservative wing. As an initial matter, the Court determined that the case was not moot even though SEIU had sent out a notice offering a full refund to all class members. Voluntary cessation of unlawful conduct does not generally render a matter moot since the defendant could simply reengage in the unlawful conduct as soon as the case was dismissed. There were also issues as to the adequacy of the SEIU's notice.

Moving to the merits, the Court began by emphasizing that "compulsory subsidies for private speech [here, the Union's speech] are subject to exacting First Amendment scrutiny" and cannot be sustained unless (1) the fees are part of a comprehensive regulatory scheme involving a "mandated association," which itself is permissible only when the association serves a compelling state interest and cannot be achieved through less restrictive means; and (2) where the compulsory fees are levied only insofar as "they are a ‘necessary incident' of the ‘larger regulatory purpose which justified the required association.'" Compulsory fees paid by nonmembers to a public employee union constitute "compelled speech" and impose a "significant impingement on First Amendment rights." The Court declined to "revisit" whether prior cases "have given adequate recognition to the critical First Amendment rights at stake," but the fact that the Court even mentioned reconsidering this caselaw will surely worry unions.

The Court pointed out that requiring nonmembers to opt-out of paying the political/advocacy portion of annual union dues was a "remarkable boon to unions," since those who don't elect to join the union probably don't share its political mission. Further, given that the Court's decisions have found that nonmembers cannot be forced to fund the union's political activities, "what is the justification for putting the burden on the nonmember to opt out of making such a payment?" The Court dismissed as an "offhand remark" the statement in Machinists v. Street, 367 U.S. 740, 760 (1961) that "dissent is not to be presumed – it must affirmatively be made known to the union by the dissenting employee." As the Court explained, that statement was dicta and "we did not pause to consider the broader constitutional requirements of an affirmative opt-out requirement." Cases following Street simply relied on Street "without any focused analysis on whether the dicta from Street had authorized an opt-out requirement as a constitutional matter." (Folks, the sound you hear is 50+ year old precedent biting the dust.) The Court stopped short of holding that an opt-in system is required for all non-chargeable union fees, but strongly hinted that it might be, stating that prior cases sanctioning the opt-out scheme for annual fees "approach, if they do not cross, the limit of what the First Amendment can tolerate." But here, in the case of a special assessment for an expressly political purpose, it was clear that an opt-out system would not do. SEIU was required to give fresh notice and could charge the assessment only to nonmembers who affirmatively consented to pay it. Moreover, the SEIU could not charge nonmembers who objected to the assessment a percentage of it on the theory that it should be subject to the overall annual fee percentage of bargaining/non-bargaining fees. The assessment was imposed for the Political Fight Back Fund and there was no justification to impose any portion of this cost on objecting nonmembers.

Justice Sotomayor, joined by Justice Ginsburg, concurred in the judgment only. Sotomayor agreed that the First Amendment required nonmembers to be given notice and an opportunity to opt-out of the special assessment, but did not agree with the Court's decision to address whether the system should be opt-out or opt-in. This issue was "outside the scope of the questions presented and briefing." In reaching out to answer an unasked question, the Court, for the first time, held that an opt-in system is sometimes constitutionally required (i.e., when there is a special assessment for political expenses). But the majority created more questions than it answered. Is an opt-in approach required for all special assessments or only those involving non-bargaining fees? Is the new rule really limited to special assessments or does it apply to all fees, as the majority hints that it might? According to the concurring justices, the Court should have left all of these questions for another day, after it had the views of the lower courts and the briefing and analysis of the parties. "Not content with our task, prescribed by Article III, of answering constitutional questions, the majority today decides to ask them as well."

Finally, Justice Breyer (ever the pragmatist) penned a dissent, in which he was joined by Justice Kagan. Hudson expressly permitted unions to calculate fees (and the bargaining/nonbargaining percentage) based on the prior year's expenses. In the dissent's view, this is the only administratively workable approach. Ultimately if this results in an overpayment by nonmembers in one year, that overpayment will be corrected in the following year, when the percentage is adjusted.

Next, in Federal Communications Commission v. Fox Television Stations, Inc. (10-1293), the Court found unanimity, but only by avoiding (for a second time) the First Amendment questions everyone has been waiting to see resolved. The resulting decision is a bit of a snooze. To put the decision in context, we need a little regulatory history lesson. While the FCC has long had the authority to regulate indecent broadcasts, it didn't use that authority until the 1970s. 1978 marked the first time the Court reviewed the FCC's indecency policy. The case, FCC v. Pacifica Foundation, involved George Carlin's "Filthy Words" monologue (which, if you have heard it, is essentially, an endless barrage of dirty words). The Court upheld the FCC's finding of indecency, noting that the broadcast media is uniquely pervasive in our lives and uniquely accessible to children, and therefore was subject to more limited First Amendment protection. The Court did note, however, that it was not deciding whether "an occasional expletive . . . would justify sanction." Thereafter, the FCC limited itself to the 7 words specifically addressed in Pacifica, and indicated that "isolated" or "occasional" expletives would not necessarily be actionable. In 1987, the FCC broadened its interpretation of Pacifica somewhat, explaining that it would not limit itself to those specific 7 words, but would instead look at the "full context of allegedly indecent broadcasts." Still, the FCC noted the important difference between isolated and repeated broadcasts of indecent material, stating that for expletives, "deliberate and repetitive use in a patently offensive manner is a requisite to a finding of indecency." For speech involving sexual or excretory functions, however, "the mere fact that specific words or phrases are not repeated does not mandate a finding that material that is otherwise patently offensive is not indecent." In a 2001 policy statement, the FCC set forth three factors it would consider in determining indecency: (1) explicitness or graphic nature of the depiction of sexual or excretory organs or activities; (2) whether the material "dwells on or repeats at length" such depictions; and (3) whether the material is used to titillate or shock. The FCC specifically noted that repetition "exacerbate[s] the potential offensiveness of broadcasts. In contrast, where sexual or excretory references have been made once or have been passing or fleeting in nature, this characteristic has tended to weight against a finding of indecency."

You may want to shield your innocent eyes, because we are now going to reveal the shocking subject matter at the center of the lawsuit. During the 2002 Billboard Music Awards, broadcast by Fox, Cher stated in an unscripted acceptance speech, "So f*** ‘em," in reference to her critics over the years. In a 2003 broadcast of the Billboard Music Awards, "a person named Nicole Richie" said "Have you ever tried to get cow s*** out of a Prada purse? It is not so f**cking simple." (The Court endeared itself to us by not calling Richie an actress or anything beyond a "person.") The third incident involved an episode of NYPD Blue aired by ABC, during which the nude buttocks of an adult female character were shown for approximately 7 seconds and the side of her breast was revealed for a moment. After these incidents, but before the FCC issued any notices to Fox or ABC, the FCC issued a decision sanctioning NBC for this unscripted comment by singer Bono during the Golden Globe Awards: "This is really, really, f***ing brilliant. Really, really, great." The FCC found the isolated use of the F-word actionable because it is "one of the most vulgar, graphic and explicit descriptions of sexual activity in the English language" and "any use of that word or a variation, in any context, inherently has a sexual connotation." (Bet that was news to Bono.) The FCC expressly found that the mere fact that a word is not repeated does not mandate a finding that it is not indecent. Though the incidents involving Fox and ABC occurred before the Bono decision, the FCC applied its new policy on fleeting expletives and nudity and found them indecent.

The Second Circuit first overturned the FCC's order with respect to Fox as "arbitrary and capricious" in light of its about-face on fleeting expletives. On its first trip up, the Court reversed, finding that the FCC had shown sound reasons for its change of policy. On remand, the Second Circuit invalidated the FCC's order again, this time finding that its policy was unconstitutionally vague in its entirety. Thereafter, the Second Circuit summarily reversed the ABC order, finding that it was bound by its decision in Fox striking down the FCC's indecency policy as unconstitutionally vague. In a unanimous decision (less Justice Sotomayor, who had participated in the cases while on the Second Circuit), the Court found that the FCC's policy was unconstitutionally vague as applied to Fox and ABC, whose conduct occurred before the FCC had clearly explained that it intended to reverse its exemption for fleeting expletives. In light of the lengthy regulatory history, Fox and ABC simply did not have fair notice that their conduct would be subject to sanctions.

Good news for ABC and Fox for the moment, but the problem is that the Court once again did not address the big questions—whether the FCC can constitutionally regulate fleeting expletives and nudity under the First Amendment and whether even Pacifica is correct in light of evolving technology that gives people more choice and control over what they see. Those questions are left, yet again, for another day.

These issues prompted two Justices to pen opinions relating to the denial of cert in a similar case, Federal Communications Commission v. CBS Corporation (11-1240), where the Third Circuit vacated an FCC order fining CBS $500,000 for the Justin Timberlake/Janet Jackson "wardrobe malfunction" Super Bowl incident. The Third Circuit found the FCC's order arbitrary and capricious in light of its longstanding policy regarding fleeting expletives and nudity. Chief Justice Roberts wrote to concur in the denial of cert. He wasn't sure he agreed with the Third Circuit. The FCC's policy is to conduct a context specific review of the broadcast as a whole. Prior to 2004, the FCC made an exception for fleeting expletives, but it never stated that the exception would apply to fleeting nudity and, in Roberts' view, there is good reason to distinguish between the two. "As every schoolchild knows, a picture is worth a thousand words, and CBS broadcast this particular picture to millions of impressionable children." Roberts nevertheless agreed with the denial of cert in this case because the matter is "moot going forward," as the FCC has now made "clear that the brevity of an indecent broadcast – be it word or image – cannot immunize it from FCC censure. . . . Any future ‘wardrobe malfunctions' will not be protected on the ground relied on by the court below."

Justice Ginsburg, for her part, also concurred in the denial of cert, noting that the remand "affords the Commission an opportunity to reconsider its indecency policy in light of technological advances and the Commission's uncertain course since this Court's ruling in [Pacifica]."

We turn from one speech case to another, American Tradition Partnership, Inc. v. Bullock (11-1179). The Court's 2010 decision in Citizens United v. Federal Election Commission (2011), striking down federal limits on independent campaign spending by corporations and unions, may well be its most controversial decision since Bush v. Gore. (Yes, we'd probably put it ahead of even the health care decision.) Montana, for its part, refused to apply the decision to its own state laws. When its 1912 law restricting corporate campaign contributions was challenged, the Montana Supreme Court upheld the law, finding that Montana's unique factual experience had shown that these corporate contributions had indeed led to influence buying in Montana, corrupting the political process. (By contrast, the majority in Citizens United had posited that there was no evidence that independent contributions corrupt the political process.) In a per curiam one-paragraph opinion, the Court concluded that there could "be no serious doubt" that the holding of Citizens United applied to Montana's law. The liberal Justices dissented, as they did in Citizens United. In their view, independent expenditures (i.e., those not made to the candidate or parties directly) can be just as corrupting as direct expenditures. Moreover, the Citizens United decision should not bar Montana from enacting such a law where its history had in fact shown that independent corporate expenditures led to corruption or the appearance of corruption in Montana. "Montana's experience, like considerable experience elsewhere since . . . Citizens United, casts grave doubt on the Court's supposition that independent expenditures do not corrupt or appear to do so." Given the Court's decision, and reaffirmation of that decision, however, it may take a constitutional amendment to change the situation.

Finally, in addition to its decisions, in First American Financial Corp. v. Edwards (10-708), the Court dismissed the writ of certiorari "as improvidently granted," (colloquially referred to as DIGing a case) which has the effect of leaving the Ninth Circuit's judgment intact. Although the case was briefed and argued on the merits, the Court gave no explanation for the dismissal. The Court of Appeals had upheld the plaintiff's standing under Article III of the Constitution to sue her title insurance company under a federal statute, the Real Estate Settlement Procedures Act or "RESPA." When the Court accepted the case, it was watched widely for its potential impact on the law of standing, particularly for consumer protection statutes conferring private rights of action. The statute allows purchasers of real estate closing services to sue companies providing them with the services for statutory damages and attorney's fees if kickbacks were paid to obtain the referral business, even if the purchaser suffered no discernible harm in the price or quality of the services. With the dismissal, any effort by the Court to draw a line as to what injuries are cognizable to confer Article III standing is left for another day.

It has been a whirlwind of a Term. As always, we thank you for following it with us. Have a wonderful summer!

Kim & 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