Supreme Court Update: Oxford Health Plans v. Sutter (12-135), Peugh v. United States (12-62) and Horne v. Department of Agriculture (12-123)

June 11, 2013 Supreme Court Update

Greetings, Court fans!

We are well into the month of June, which can mean only one thing: more Supreme Court decisions! Today we have Oxford Health Plans v. Sutter (12-135), addressing an arbitrator's authority to construe the scope of an arbitration agreement; Peugh v. United States (12-62), finding that retroactive application of the Federal Sentencing Guidelines may violate the Ex Post Facto clause; and Horne v. Department of Agriculture (12-123), on a court's jurisdiction to entertain a takings claim.

The Court's unanimous decision in Oxford Health Plans v. Sutter (12-135) proves that sometimes, procedure really does trump substance. Just a couple terms back, in Stolt-Nielsen S.A. v. AnimalFeeds (2010), the Court held that an arbitration clause that the parties stipulated was silent as to the issue of class arbitration did not permit class arbitration. Here, the Court was once again faced with an arbitration clause that contained not one mention of class arbitration, stating only that "[n]o civil action concerning any disputes under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration. . . ." However, after Oxford Health Plans successfully moved to compel arbitration of Sutter's claim, both parties had asked the arbitrator to determine whether the clause permitted class arbitration. The arbitrator found that it did. Oxford filed a motion to vacate arguing that the arbitrator exceeded his authority, but the appeal was unsuccessful. After Stolt-Nielsen was decided, Oxford renewed its argument before the arbitrator that the silent clause did not permit class arbitration. The arbitrator once again concluded that class actions were permitted, reasoning that the clause required arbitration of all civil actions and a class action was a type of civil action. The district court and the Third Circuit once again denied Oxford's motion to vacate.

The Court unanimously affirmed, in a short opinion by Justice Kagan. The parties twice submitted the issue of whether the clause permitted class-arbitration to the arbitrator, thus waiving any argument that the arbitrator lacked authority to decide the issue (i.e., that the issue went to arbitrability as opposed to contract interpretation). Having conceded that the question was one of contract interpretation and entrusting that interpretive issue to the arbitrator, there was no hope for Oxford, in light of the extraordinarily deferential standard of review of arbitral awards. "So long as an arbitrator ‘makes a good faith attempt' to interpret a contract, ‘even serious errors of law or fact will not subject his award to vacatur.'' As the Court put it, "the sole question . . . is whether the arbitrator (even arguably) interpreted the parties' contract, not whether he got its meaning right or wrong." The arbitrator did purport to undertake such an analysis, so Oxford loses. But the Court took pains to say that it was rejecting Oxford's argument "because, and only because" of this procedural posture.

Justice Alito, joined by Justice Thomas, concurred separately to go one step further. In their view, it was absolutely clear that the arbitrator got it wrong – and, worse, that the arbitrator's decision was unlikely to be binding on unnamed class members. However, since Oxford had conceded that the arbitrator should decide the issue in the first instance, they agreed that the Court's hands were tied.

Turning now to Peugh v. United States (12-62), the Court held that while the Federal Sentencing Guidelines, post-Booker, are no longer binding, they nonetheless exert such a strong influence on sentencing decisions that the application of post-offense Guidelines calling for a higher sentencing range violates the Ex Post Facto Clause. Petitioner Marvin Peugh was sentenced in 2010 for multiple counts of bank fraud occurring in 1999 and 2000. Under the 1998 Sentencing Guidelines in effect at the time of his crimes, Peugh's Guidelines range would have been 30 to 37 months. Under the 2009 Guidelines in effect at the time of his sentencing, however, his Guidelines range was 70 to 87 months. At sentencing, the district court applied the 2009 Guidelines over Peugh's objection that doing so violated the Ex Post Facto Clause. The Seventh Circuit also rejected Peugh's ex post facto claims, under that Circuit's precedent.

The Court took the case to resolve a circuit split, and reversed, 5-4. Justice Sotomayor wrote for the majority, joined by Ginsburg, Breyer and Kagan in full, and Kennedy in relevant part. The Constitution forbids the passage of any "ex post facto Law," which the Court defined very early on to include "[e]very law that changes the punishment, and inflicts a greater punishment, than the law annexed to the crime, when committed." Calder v. Bull (1798). Under the Court's more recent precedent, the touchstone of the inquiry is whether a given change in law presents a "sufficient risk of increasing the measure of punishment attached to the covered crimes." California Dept. of Corrections v. Morales (1995). Mere speculation or conjecture that a change in law will increase punishment is insufficient to establish an ex post facto claim. Here, the Court surveyed the landscape post-Booker and determined that –

notwithstanding Booker's holding that the Guidelines are advisory rather than mandatory – the federal sentencing system continues to steer district courts to more within-Guidelines sentences. For one, district courts are required to begin their analysis by calculating the Guidelines range. If they deviate from that range, they must provide a justification that is "sufficiently compelling to support the degree of the variance." On appeal, appellate courts may presume a within-Guidelines sentence is reasonable, while the reasonableness of an outside-Guidelines sentence may be assessed by the extent of its deviation. All told, the vast majority of cases impose within-Guidelines sentences or sentences that depart downward on the Government's motion. The Sentencing Commission's own data indicate that when a Guidelines range moves up or down, the sentences imposed move along with it. Thus, the majority readily rejected the Government's argument that the Guidelines do not rise to the level of a "law" within the meaning of the Ex Post Facto Clause, holding that "a retrospective increase in the Guidelines range applicable to a defendant creates a sufficient risk of a higher sentence to constitute an ex post facto violation."

Justice Thomas wrote for the dissent, joined in the main by the Chief, and Justices Scalia and Alito. The dissenters agreed with the government that the Guidelines do not have the effect of law because district courts still retain discretion in sentencing. True, district courts must explain any deviations from the Guidelines, but that is to ensure meaningful appellate review, not to constrain the district courts' discretion. Courts of appeal, in turn, must review all sentences under a deferential abuse-of-discretion standard, and may not presume that outside-Guidelines sentences are unreasonable. Further, in the dissenters' view, to the extent that later versions of the Guidelines lead district courts to higher sentences, they are leading the courts to more accurate sentences, because the Sentencing Commission is charged with crafting guidelines that best comply with the sentencing purposes set forth in 18 U.S.C. § 3553(a).

In a section not joined by the other dissenters, Justice Thomas went on to criticize the Court's ex post facto jurisprudence as having strayed from Justice Chase's 1789 formulation of an ex post facto law as one that inflicts a greater punishment than "the law annexed to the crime" when committed. Under this formulation, changes to the Sentencing Guidelines or other factors do not matter so long as the punishment affixed by statute remains the same. In Thomas's view, the Court's current "sufficient risk" test wrongly focuses on the sentence that a defendant might receive (within the range permitted by statute), rather than on the punishment "annexed to the crime." Justice Alito, joined by Scalia, wrote a separate, short dissent to emphasize that he saw "no occasion in this case" to reconsider the merits of the Court's "sufficient risk" test.

Lastly, it looks like nothing brings people together like nature's candy . . . raisins. That, or the opportunity to unanimously reverse the Ninth Circuit just one more time before the Term ends. Whichever the case may be, Justice Thomas wrote for the whole team in Horne v. Department of Agriculture (12-123). The case took up the cause of California's raisin producers, who, under the Depression-era Agricultural Marketing Agreement Act of 1937 ("AMAA") and a California Raisin Marketing Order ("Marketing Order") issued thereunder by the Agriculture Secretary, must often turn over portions of their crops to the federal government as part of a price stabilization effort. Raisin producers Marvin and Laura Horne cried foul and refused to hand over their raisins – a move that (along with other alleged regulatory violations) ultimately prompted the USDA to impose more than $650,000 in fines and penalties and initiate an enforcement action. The Hornes denied they were raisin "handlers" covered by the AMAA and the Marketing Order, and also pleaded the Fifth Amendment's Takings Clause as an affirmative defense. The Hornes lost before an ALJ, and again on appeal before a judicial officer, who decided the regulatory issues and imposed penalties, but who believed he lacked authority to address the takings claim.

The Hornes took the case to federal district court, where they lost again on summary judgment. On the takings defense, the district court determined that, while the federal government takes title to a significant portion of a raisin producer's crop, that transfer of title does not amount to a physical taking. The Ninth Circuit affirmed on the regulatory issues, but concluded that it lacked jurisdiction to decide the takings claim because, under the Tucker Act, any such claim had to be brought in the Court of Federal Claims. That reasoning flowed from the Ninth Circuit's determination that the Hornes had sued in the capacity of raisin "producers" rather than raisin "handlers," who benefit from a comprehensive procedural scheme under the AMAA and who thus are not consigned to the exclusive jurisdiction of the Court of Federal Claims under the Tucker Act.

The Justices noted that, the Ninth Circuit's reasoning notwithstanding, both the USDA authorities and the district court had determined that the Hornes were raisin handlers – otherwise, the AMAA and the Marketing Order would not have applied at all. Thus, petitioners necessarily raised any defense to duties imposed under either the AMAA or the Marketing Order in the capacity of raisin handlers. That point resolved, the Court took up the ultimate jurisdictional issue. With no apparent sense of irony, the Court chewed on the issue of ripeness at some length. The Government argued that, under the Tucker Act, the Hornes should have complied with the USDA order and sought compensation in the Court of Federal Claims after being denied just compensation. The Justices disagreed, holding that the AMAA, by providing a comprehensive remedial scheme as well as the ability to raise constitutional defenses, displaced Tucker Act jurisdiction and permitted the Hornes to present their takings claim – which the Court deemed ripe – in federal court. The case is headed back to the Ninth Circuit. We can only hope there will be no sour grapes.

Finally, the Court granted cert in one new case for next Term. Fresh off this week's arbitration decision, the justices have decided to hear BG Group PLC v. Argentina (12-138), which asks: "In disputes involving a multi-staged dispute resolution process, does a court or instead the arbitrator determine whether a precondition to arbitration has been satisfied?"

The June onslaught is just beginning – we'll be back soon!

Kim, Jenny & Julie

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