United States v. Stevens (08-769), Perdue v. Kenny (08-970), Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA (08-1200), Conkright v. Frommert (08-810) and Order List

April 27, 2010 Supreme Court Update

Greetings, Court fans!

The Court was busy last week, issuing four opinions, and an extensive order list including several cert grants, all while celebrating Justice Stevens' 90th birthday. Stevens, as you've surely heard, has formally announced his retirement at the end of this Term. He will be missed.

The most newsworthy decision came in United States v. Stevens (08-769) (no relation!), where the Court struck down a statute criminalizing the sale of videos depicting animal cruelty, over Justice Alito's lone dissent. (Who knew he had a soft spot for animals?) The Court also issued a pair of decisions of interest to lawyers: Perdue v. Kenny A. (08-970), holding that federal fee shifting statutes do not permit attorneys' fees to be enhanced based on the attorneys' performance except under extraordinary circumstances; and Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA (08-1200), in which the Court held that mistakes of law do not constitute bona fide errors that would constitute a defense to a claim under the Fair Debt Collection Practices Act. Finally, in Conkright v. Frommert (08-810), the Court considered the level of deference accorded to an ERISA plan administrator's interpretations of plan documents, where the administrator has previously adopted an erroneous interpretation.

In United States v. Stevens, by a 8-1 vote, the Court struck down 18 U.S.C. § 48, which criminalized the creation, sale, or possession of certain depictions of animal cruelty as overbroad, in violation of the First Amendment. In enacting § 48, Congress aimed to stop the creation of so-called "crush videos," which depict women crushing animals to death with their bare feet or while wearing high heeled shoes, and which are said to appeal to a specific sexual fetish. (There are two decisions I wish I had never read: the Court's 2007 decision in Gonzales v. Carhart, regarding partial birth abortion and this one. In particular, I'd advise against reading the graphic depiction of a "crush video" in Justice Alito's dissent if you wish to avoid nightmares.) But the text of the statute reaches any "depiction of animal cruelty," defined as any recording "in which a living animal is intentionally maimed, mutilated, tortured, wounded, or killed, if such conduct is illegal under Federal law or the law of the State in which the creation, sale or possession [of the recording] takes place." The statute makes an exception for depictions that have "serious religious, political, scientific, educational, journalistic, historical, or artistic value." In the case before the Court, the defendant was prosecuted and convicted under § 48 for distributing dogfighting videos. On appeal, the Third Circuit en banc declared § 48 facially unconstitutional as a content-based regulation of protected speech.

Led by the Chief, the Court affirmed on the different ground that § 48 was unconstitutionally overbroad. As an initial matter, the Court refused to find that depictions of animal cruelty categorically fell outside the zone of the First Amendment (as do, for example, obscenity and defamation). The Court rejected as "startling and dangerous" the Government's suggestion that First Amendment protection for a given category of speech should depend on a balancing of the value of the speech against its societal costs. As the Court admonished, the "First Amendment itself reflects a judgment by the American people that the benefits of its restrictions on the Government outweighs the costs. Our Constitution forecloses any attempt to revise that judgment simply on the basis that some speech is not worth it." Turning to the defendant's facial attack on § 48, the Court eschewed the typical analysis, which would have required the defendant to establish that § 48 cannot be valid as applied to any set of circumstances (including, for example, crush videos), in favor of an overbreadth analysis, which only requires the defendant to show that "a substantial number of [§ 48's] applications are unconstitutional, judged in relation to the statute's plainly legitimate sweep." In the Court's view, § 48 was unconstitutionally overbroad, because it would prohibit depictions of animals being "wounded" or "killed" when that conduct was not outlawed or believed to be cruel in the state where the conduct occurred, as long as the conduct was illegal in the state where the depiction was created, sold, or possessed. This would preclude, for example, depictions of cock-fighting from circulating in most states, even if the fight took place in Puerto Rico, where it is legal; depictions of certain types of hunting or livestock slaughter from circulating in states with regulations banning those practices; and all hunting magazines and videos in Washington, D.C. The Court found that the statute's exception for depictions with "serious" value did not save the statute from being unconstitutionally overbroad, given that the primary value of many hunting videos was for entertainment. The Court also took little comfort in the Government's assurances that it would exercise prosecutorial discretion and only bring cases involving extreme cruelty. "The First Amendment protects against the Government," the Court intoned, "it does not leave us at the mercy of noblesse oblige."

Justice Alito, the lone dissenter, would not have addressed the overbreadth issue at all. He would have vacated and remanded with instructions to the Third Circuit to decide whether § 48 is unconstitutional as applied to the defendant's videos. If the overbreadth issue was to be decided, however, he would not have found that § 48 banned a "substantial" quantity of protected speech. In Justice Alito's view, most of the overbreadth examples cited by the Court would not have come under § 48 at all because they were not depictions of "animal cruelty," or would have met the exception for depictions with a "serious" value. Any remaining "sliver[s] of unconstitutionality" were not sufficient to strike down § 48 altogether. Justice Alito analogized § 48 to laws prohibiting child pornography, which the Court has upheld, in that the underlying conduct involves a crime which cannot be effectively combated without targeting the distribution of its depiction, and in that the value of the underlying conduct is "overwhelmingly outweighed by the evil to be restricted." Certain members of Congress have promised to draft a more narrowly tailored statute in response to the decision.

For the lawyers among you (everyone?), the next two decisions may be of real interest. In Perdue v. Kenny A. (08-970), the Court reaffirmed the primacy of the "lodestar" method (hours worked multiplied by prevailing hourly rates) of calculating attorney's fees under federal fee-shifting statutes. The case involved fees for attorneys who had filed a class action on behalf of 3,000 children in Georgia's foster care system and negotiated a consent decree after eight years of work. The attorneys asked for over $14 million in fees, based on a lodestar of approximately $7 million, and a 100% "enhancement" for superior work. The District Court reduced the lodestar calculation somewhat, and granted a 75% enhancement. The Eleventh Circuit affirmed, but judges on the panel questioned whether Supreme Court precedent permitted the enhancement. In a 5-4 decision along traditional conservative/liberal lines, the Court found that the enhancement was not appropriate in this case. Writing for the majority, Justice Alito refused to rule out enhancements altogether, but observed that circumstances justifying enhancements were "rare" and "exceptional," and would have to be supported with specific evidence that the loadstar fee would not have been adequate to attract competent counsel. The Court identified just three circumstances that might justify enhancement: (1) where the hourly rate does not measure the attorney's true market value (for example if the rate is based on years of admission to the bar but the attorney has valuable other experience); (2) where the attorney makes an extraordinary outlay of expenses or the litigation is exceptionally protracted; or (3) where there has been an exceptional delay in the payment of fees. While courts might have to develop an alternative to the lodestar method if hourly billing becomes "unusual," that day had not yet arrived. Turning to the case before it, the Court found that the district court failed to justify the enhanced award. In particular, the Court criticized the district court judge for "not employ[ing] a methodology that permitted meaningful appellate review," to wit, basing the enhancement, in part, on a comparison between class counsel and other unnamed counsel the judge had encountered in his years before the bar and on the bench. Finally, the Court expressed discomfort with large attorneys fee awards that are "paid in effect by state and local taxpayers," with money that then "cannot be used for programs that provide vital public services." Justice Kennedy and Justice Thomas each wrote concurring opinions to underscore that enhancements should be granted only on the rarest occasions.

The dissenters, led by Justice Breyer, disagreed with the Court's decision to go beyond the question presented in the petition for certiorari -- whether the lodestar can ever be enhanced based on the quality of the lawyers' performance and the results obtained. If the Court insisted on addressing the propriety of the enhancement in this case, the dissenters believed that the district court's decision should be reviewed under a deferential standard of review because the lower court was much better situated to determine the attorneys' "value." The dissent cited numerous portions of the record to demonstrate that the district court did not abuse its discretion in finding that the attorneys brought about greater value, i.e., substantial improvements to a broken foster care system in the face of strenuous opposition by the state, than the lodestar amount reflected.

Next, in Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA ("Carlisle"), the Court held that the bona fide error defense to a violation under the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. 1692 et seq., does not encompass mistakes of law. Under § 1692k(c), a debt collector is not liable for a violation of the FDCPA if it "shows by a preponderance of the evidence that the violation was not intentional and resulted from a bona fide error notwithstanding the maintenance of procedures reasonably adapted to avoid any such error." Carlisle filed a lawsuit against Jerman seeking foreclosure of a mortgage held by its client Countrywide and included with the complaint a Notice stating that the mortgage debt would be assumed to be valid unless Jerman disputed it in writing. Jerman disputed the debt, Carlisle confirmed with its client Countrywide that Jerman had in fact paid off the mortgage, and Carlisle promptly dismissed the lawsuit. But that was just the beginning. Jerman then sued Carlisle on behalf of a putative class, claiming that Carlisle violated the FDCPA by requiring that Jerman dispute the debt "in writing," when the FDCPA only required that a debt collector provide a notice to the consumer indicating that "unless the consumer . . . disputes the validity of the debt . . ., the debt will be assumed to be valid by the debt collector." The district court found that Carlisle violated the FDCPA by adding the "in writing" requirement, but granted summary judgment for Carlisle anyway after concluding that it was "bona fide error" under § 1692k(c), in light of the division of authority regarding whether requiring the debtor to dispute the validity of the debt in writing was permissible. The Sixth Circuit agreed, finding that mistakes of law could qualify as bona fide errors.

Led by Justice Sotomayor, six Justices of the Court disagreed. Citing the old adage that ignorance of the law is no excuse, the Court explained that actions undertaken intentionally are not rendered "unintentional" merely because the actor does not know that those actions violate the law. The Court also noted that the bona fide error defense in the Truth in Lending Act ("TILA"), upon which the FDCPA was modeled, had been interpreted by three appellate courts to exclude mistakes of law prior to the passage of the FDCPA. It was reasonable to assume that Congress was aware of and approved that interpretation when it adopted the FDCPA. The Court also cited some snippets of legislative history that was "not necessary" to its decision, but which the majority felt supported the decision. Justice Scalia agreed with the majority's result and its reasoning "except for its reliance on two legal fictions." First, Scalia found it beyond doubtful that Congress actually knew about and relied upon three appellate decisions interpreting TILA, which were decided years apart and which were contrary to several lower court decisions and a state appellate decision. Second, Scalia chastised the Court for relying on ambiguous legislative history and ignoring legislative history that cut against its interpretation. As he sarcastically put it: "Legislative history, after all, almost always has something for everyone!"

Justice Kennedy, joined by Alito, dissented. In their view, the use of the term "unintentional" in combination with "violation," as opposed to "unintentional conduct," reflected that the law intended to include legal errors as well as factual and clerical errors. The dissenters also worried that the majority's interpretation would cause attorneys to adopt the most debtor-friendly interpretation of the FDCPA in every instance, contrary to their ethical obligation to advocate aggressively for their clients' interests. They also expressed concern that, without the availability of the bona fide error defense for purely technical errors like this one, plaintiffs' attorneys would be spurred to bring suits simply to collect the attorneys' fees and automatic penalties available under the FDCPA, even though no harm was caused.

Finally, in Conkright v. Frommert (08-810), the Court reaffirmed the principle that an ERISA plan administrator's interpretations of plan documents are entitled to deference, and that an administrator can't be stripped of deference simply for making "a single honest mistake." The dispute concerned the proper calculation of benefits for Xerox employees who were rehired after they had retired and received a lump-sum distribution. When the employees challenged the plan administrator's first approach for calculating their benefits going forward, the Second Circuit found that the approach was unreasonable. On remand, the plan administrator proposed another approach, but the district court rejected it in favor of one the employees preferred. The Second Circuit affirmed in relevant part, on the ground that a court need not defer to a plan administrator where the administrator had previously construed the same plan terms in a manner that violated ERISA. The Court reversed, in a 5-3 decision. (Justice Sotomayor did not participate.) The Chief's opinion for the majority began with this unassailable principle: "People make mistakes." The Court found nothing in ERISA or its ERISA precedent to suggest that courts could punish plan administrators for making an honest error by refusing to defer to their future interpretations. Trust law provided conflicting guidance on this issue, at best. The Court concluded that deference best preserved the "careful balancing" between protecting employees' rights under a plan and – by ensuring efficiency and predictability – encouraging employers to create plans in the first place.

Justice Breyer, joined by Justices Stevens and Ginsburg, dissented. They saw no reason to depart from trust law principles in this case. And, by their reading, a large body of trust law permits courts to substitute their judgment for that of a trustee after the trustee has committed an abuse of discretion. The dissent feared that taking this power away from the courts would give plan administrators an incentive to draft ambiguous retirement plans, and to take at least "one free shot" at a questionable interpretation that favored the employer.

The Court also agreed to hear four more cases last week:

Costco Wholesale Corporation v. Omega, S.A. (08-1423), where the Court will decide whether the "first sale" doctrine in copyright law, set forth in 17 U.S.C. § 109(a), under which the owner of any particular copy "lawfully made under this title" may resell that good without the authorization of the copyright holder, applies to imported goods manufactured abroad.

Staub v. Proctor Hospital (09-400), which presents this question for review: "In what circumstances may an employer be held liable based on the unlawful intent of officials who caused or influenced but did not make the ultimate employment decision?"

United States v. Tohono O'odham Nation (09-846), which asks: "Whether 28 U.S.C. § 1500, [which provides that the Court of Federal Claims (CFC) does not have jurisdiction over "any claim for or in respect to which the plaintiff . . . has . . . any suit or process against the United States" or its agents "pending in any other court,"] deprives the CFC of jurisdiction over a claim seeking monetary relief for the government's alleged violation of fiduciary obligations if the plaintiff has another suit pending in federal district court based on substantially the same operative facts, especially when the plaintiff seeks monetary relief or other overlapping relief in the two suits.

Ransom v. MBNA, America Bank, N.A. (09-907), where the Court will determine "[w]hether, in calculating the debtor's ‘projected disposable income' during the plan period, the bankruptcy court may allow an ownership cost deduction for vehicles only if the debtor is actually making payments on the vehicles."

I'll be back soon to bring you this week's orders and any decisions that come down.


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