Supreme Court Update: Wal-Mart Stores, Inc. v. Dukes (10-277), American Electric Power v. Connecticut (10-174) and Order List

June 22, 2011 Supreme Court Update

Greetings, Court fans!

We're back with in-depth coverage of yesterday's two most noteworthy decisions as well as the Court's recent orders.

Monday's featured fight was Big Box vs. Big Class, a/k/a Wal-Mart Stores, Inc. v. Dukes (10-277). Wal-Mart won, in a decision that will send ripples (if not waves) through class action law. In Dukes, three women who claimed to have been the victims of sex discrimination brought a lawsuit against Wal-Mart, the nation's largest private employer. They successfully moved to certify a class action of about 1.5 million plaintiffs, which the Ninth Circuit affirmed.

The Court reversed, dividing 5-4 on familiar ideological lines over a fundamental question: what does Rule 23(a) mean when it establishes the threshold requirement that plaintiffs show that "there are questions of law or fact common to the class"? Justice Ginsburg, writing for the Court's four dissenters (and, should we add, all of its women?), thought the plaintiffs had shown a common issue: whether Wal-Mart's national policy of giving wide discretion to local managers, and its refusal to cabin that discretion, allowed for sex discrimination in pay and promotions. The Court held otherwise. The literal language of the commonality requirement "is easy to misread," the Court's foremost champion of plain text wrote, since any "competently crafted class complaint literally raises common questions," e.g., "Do our managers have discretion over pay?" Instead, the real question posed by the commonality requirement is whether putative class members' claims "depend upon a common contention" whose "truth or falsity will resolve an issue that is central to the validity of each one of the claims in one stroke." The dissenters thought this looked more like predominance than commonality. Whatever you call it, commonality now has teeth.

In another holding likely to affect class actions across the board, the Court ruled that plaintiffs seeking class certification cannot rest on their pleadings: they must "be prepared to prove that there are in fact sufficiently numerous parties, common questions of law or fact, etc." "Frequently," the Court found, a district court must resolve merits issues – of law or fact - in order to determine whether the plaintiffs have established the class action prerequisites. Here, the plaintiffs had failed to establish their contention that Wal-Mart was engaged in a pattern or practice of discrimination.

On one point all nine justices agreed: a Rule 23(b)(2) class action, by which plaintiffs seek injunctive or declaratory relief, cannot include claims for individualized monetary relief, even if those claims are "incidental" to the sought-after injunctive or declaratory relief. To seek individualized monetary relief, plaintiffs have to seek certification under Rule 23(b)(3), which provides greater protections to both class members and defendants: class notice, opt-out rights, and plaintiffs' proof both that common questions predominate across the class (predominance) and that class treatment is the superior method of adjudication (superiority).

In the end, the majority and dissenters fundamentally disagreed on whether local managers' discretion is inherently nefarious or benign. Justice Ginsburg noted that "Wal-Mart provides no standards or criteria [for certain employment decisions], and thus does nothing to counter unconscious bias on the part of supervisors." The majority, on the other hand, thought that a policy "against having uniform employment practices . . . [is] a very common and presumptively reasonable way of doing business," one that "raise[s] no inference of discriminatory conduct." Because this disagreement was deeply rooted in the commonality analysis, its import for Title VII claims more broadly, outside the class context, remains to be seen.

The next case removed one potential weapon in the fight against global warming. American Electric Power v. Connecticut (10-174) involved two suits by a handful of States, the City of New York and three private land trusts against four private power companies and the federal Tennessee Valley Authority – which plaintiffs claimed were the five largest carbon dioxide emitters in the United States, accountable for 10% of all carbon emissions from domestic human activities. The plaintiffs brought federal common law public nuisance claims and state tort claims based on their contention that defendants' release of carbon dioxide contributed to global warming that would damage public lands, infrastructure, human health and wildlife. Plaintiffs sought an injunction placing an initial cap on carbon dioxide emissions and requiring further reductions over time. The district court dismissed the cases, finding that they presented a non-justiciable political question. The Second Circuit reversed, however, finding that the suits were not barred by the political question doctrine and that plaintiffs had adequately alleged Article III standing. On the merits, the Second Circuit concluded that plaintiffs stated a viable cause of action under the federal common law of nuisance, since courts had long recognized that States could maintain suits to abate air and water pollution produced by other States or out-of-state industry. Finally, the Second Circuit held that the Clean Air Act did not displace the federal common law, even though the Supreme Court had previously concluded that the Clean Water Act did. The Clean Water Act provided a comprehensive regulatory system for interstate water pollution. By contrast, at the time of the Second Circuit's decision, the EPA had not promulgated any rules relating to greenhouse gas emissions and indeed, the Court had only recently made clear that EPA had authority to regulate these gases in Massachusetts v. EPA (2007).

The Court affirmed in part and reversed in part in an opinion by Justice Ginsburg. First, the Court affirmed 4-4 the Second Circuit's conclusion that plaintiffs had standing to sue and that the suits were not barred by the political question doctrine. (Justice Sotomayor sat this one out since she was a member of the Second Circuit when the case was decided. As a result, this portion of the decision, which was affirmed by an evenly divided Court, has no precedential value.) Turning to the merits, the Court (now 6-2) declined to answer the "academic" question of whether States, private citizens or municipalities could theoretically assert federal common law nuisance claims based on the emission of gases causing global warming. There was no need to do so because it was clear to the Court that, even if such a cause of action would otherwise exist, it was displaced by the Clean Air Act, which authorizes EPA to regulate carbon dioxide emissions. The Court stressed that federal common law is the exception, not the rule. As such, displacement of federal common law does not require the same sort of evidence as preemption of state laws because it is primarily the role of Congress, not the federal courts, to prescribe national policy in areas of federal interest. The Court rejected the Second Circuit's reliance on EPA's failure to act, explaining that "the delegation is what displaces federal common law," not how EPA responds to that delegation. Under the Clean Air Act, EPA has comprehensive authority to regulate carbon dioxide emissions and to take enforcement actions against polluters. If plaintiffs find EPA's actions inadequate, they can challenge them through an administrative appeal. Indeed, many of the plaintiffs had already done so and obtained a settlement under which EPA agreed to finalize rulemaking relating to greenhouse gas emissions from fossil-fuel fired power plants by May 2012. The Court saw "no room for a parallel track." That left the state law tort claims, which the Court declined to address since none of the parties had briefed them. As a result, the fight may continue on remand.

Justice Alito, joined by Thomas, concurred in part and in the judgment. While they didn't agree with the majority's interpretation of the Clean Air Act's scope in Massachusetts v. EPA (2007), having gone down that road, they agreed that the Clean Air Act displaced any federal common law nuisance claim based on carbon dioxide emissions.

The decisions are coming fast and furious now. Meanwhile, we have the following cases to look forward to next Term:

Mayo Collaborative SVCS v. Prometheus Labs, Inc. (10-1150), which asks whether patents may be claimed for "observed correlations between blood test results and patient health, so that the claim effectively preempts all uses of the naturally occurring correlations, simply because well-known methods used to administer prescription drugs and test blood may involve ‘transformations' of body chemistry."

FAA v. Cooper (10-1024), which presents this question: "Whether a plaintiff who alleges only mental and emotional injuries can establish ‘actual damages' within the meaning of the civil remedies provision of the Privacy Act?"

Hall v. United States (10-875), which asks whether Internal Revenue Code § 1399 – which provides that a bankruptcy filing other than an individual Chapter 7 or individual Chapter 11 filing does not give rise to a "separate taxable entity" – means that the capital gains income tax incurred due to the sale of a farm under Chapter 12 of the Bankruptcy Code is not an administrative expense owed by the bankruptcy estate and payable under a bankruptcy reorganization plan.

Gonzalez v. Thaler (10-895), which presents the following awkwardly written questions crafted by the Court itself: "(1) Was there jurisdiction to issue a certificate of appealability under 28 U.S.C. § 2253(c) [of the Antiterrorism and Effective Death Penalty Act of 1996] and to adjudicate petitioner's appeal?; and (2) Was the application for a writ of habeas corpus out of time under 28 U.S.C. § 2244(d)(1) due to the date on which the judgment became final by the conclusion of direct review or the expiration of the time for seeking such review" where the petitioner did not pursue discretionary review in the State's highest court.

Setser v. United States (10-7387), which asks: (1) "Does a district court have authority to order a federal sentence to run consecutive to an anticipated, but not-yet-imposed, state sentence;" and (2) "Is it reasonable for a district court to provide inconsistent instructions about how a federal sentence should interact with state sentences?"

Smith v. Louisiana (10-8145), which presents two questions for review: (1) "Is there a reasonable probability that, given the cumulative effect of the Brady and Napue/Giglio violations in Smith's case, the outcome of the trial would have been different;" and (2) "Did the Louisiana state courts ignore fundamental principles of due process in rejecting Smith's Brady and Napue/Giglio claims" – where the Louisiana courts rejected Smith's petition for post-conviction relief without making factual findings or providing reasons for their rulings.

PPL Montana, LLC v. Montana (10-218), which asks: "When a hydropower project is licensed under the Federal Power Act, a process that includes an economic analysis of the project and solicits state input, and the hydropower producer has obtained easements from private parties and paid substantial rents to the federal government on the understanding that the riverbeds under the hydropower facilities are owned by those private parties or the federal government, is a State's attempt retroactively to claim title and impose tens of millions of back and future rent obligations for use of the riverbeds preempted?"

First American Financial v. Edwards (10-708), which asks whether a private purchaser of real estate settlement services has Article III standing to sue under the Real Estate Settlement Procedures Act of 1974 – which provides that "[n]o person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding ... that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person" -- in the absence of any claim that the alleged violation affected the price, quality, or other characteristics of the settlement services provided.

The Court also asked the SG to weigh in on the following petitions:

Bank Melli Iran NY Rep. Office v. Weinstein (10-947), which would ask: (1) whether the Terrorism Risk Insurance Act of 2002 overrides the Court's holding in First National City Bank v. Banco Para El Comercio Exterior de Cuba (1983) and applicable treaty provisions "by authorizing creditors of a foreign sovereign to execute against assets of the sovereign's juridically distinct instrumentalities;" and (2) "Whether Congress violated Plaut v. Spendthrift Farm, Inc., 514 U.S. 211 (1995), by retroactively revising the parties bound by a judgment that was already final when the statute was enacted."

Countrywide Home Loans, Inc. v. Rodriquez (10-1285), which would present this issue: "Does the Bankruptcy Code's automatic stay, 11 U.S.C. §362, take precedence over a mortgage lender's right under the Real Estate Settlement Procedures Act . . . to require a borrower to deposit additional funds into his escrow account after filing for Chapter 13 bankruptcy protection when those funds are needed to cover the borrower's anticipated post-petition taxes, insurance, and other escrow obligations?"

We'll be back in your inboxes soon with analysis of more decisions!

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