Opinion

Alison Frankel

The inherent conflict for lawyers who oppose Supreme Court review

Alison Frankel
Jun 21, 2013 19:52 UTC

As usual, the U.S. Supreme Court has saved the big stuff for the last week of its term. Among the 11 cases the justices have yet to decide are the four that garnered the most public attention this year: Fisher v. University of Texas, which addresses affirmative action; the voting rights case Shelby County v. Holder; and the two gay marriage cases, Hollingsworth v. Perry, which stems from California’s ballot-proposition ban on gay marriage, and U.S. v. Windsor, which challenges the federal Defense of Marriage Act. You can reliably expect frenzied coverage at the court until rulings come down in all four of these hot-button cases.

With all eyes on the Supreme Court, I wanted to revisit an issue I mentioned glancingly in a post earlier this week: Do lawyers who write briefs opposing Supreme Court view have an ethical conflict if they’re secretly hoping for a chance to argue before the justices? I posed the question as an afterthought in a story about experienced Supreme Court litigators taking over certiorari briefing in a $350,000 dispute between a union pension fund and a landscaping company when it became clear that the otherwise undistinguished case had a shot at Supreme Court review. (And, indeed, the court granted certiorari on Monday.) A Twitter reader very thoughtfully directed me to a 2012 article in the Harvard Journal of Law & Public Policy that attempts to answer the question with some hard data.

In “The Ethics of Opposing Certiorari Before the SupremeCourt,” then Stanford Law student Aaron Tang posited the theory that as the Supreme Court’s docket shrinks and oral arguments become increasingly restricted to an elite appellate bar, “the value associated with each rare opportunity to argue before the court continues to rise.” One way to get before the justices is to prevail with a cert petition for clients seeking review of adverse rulings, Tang said, but the other, of course, is to write an unsuccessful cert opposition brief. “Attorneys who lose at the opposition stage might nevertheless enjoy a personal ‘win’ in the form of an opportunity to argue at the Supreme Court,” he wrote. “As a result, there is an ex ante ethical dilemma for attorneys tasked with opposing certiorari. This dilemma, in turn, might well have important downstream effects on clients who prevailed below and who, unlike their attorneys, would therefore prefer not to be in the Supreme Court at all.”

Tang, who wrote the paper in law school, then spent a year at the Supreme Court boutique Goldstein & Russell and is now a clerk for Judge Harvie Wilkinson on the 4th Circuit Court of Appeals, told me he became interested in the ethical dilemma of cert opposition briefs from hearing his law professors tell stories about cases in which they suspected opposition brief writers of “tanking” arguments in order to get before the court. Tang tried to come up with a way of quantifying anecdotal evidence of the phenomenon and hit on the idea of conducting a short, anonymous survey of lawyers with significant Supreme Court experience.

He sent the six-question survey to 273 lawyers and received responses from 116, or 42.5 percent. The first question asked respondents to quantify their Supreme Court experience and the last two were open-ended responses. Substantive data came from the three multiple-choice questions Tang asked: In a case with a strong chance of receiving Supreme Court review, do you perceive a conflict of interest between a lawyer’s duty to zealously represent the client and her personal desire to argue before the court if she has never made a Supreme Court appearance? What if the lawyer writing the opposition brief regularly appears before the court? And finally, have you encountered a situation in which you believe a client received less-than-zealous representation from a lawyer motivated in some part by the desire to argue before the justices? (I’ve paraphrased the questions slightly.)

What hope remains for consumers, employees after SCOTUS Amex ruling?

Alison Frankel
Jun 20, 2013 21:53 UTC

The U.S. Supreme Court’s ruling Thursday in American Express v. Italian Colors has narrowed to an irrelevant pinhole the so-called “effective vindication exception” to mandatory arbitration. Despite dicta in previous Supreme Court cases that suggested arbitration clauses are not enforceable when it is prohibitively expensive for claimants to enforce their rights through the arbitration process, the five justices in the Amex majority held that plaintiffs who sign arbitration agreements don’t have the right to pursue their claims on anything but an individual basis, even if the cost of that pursuit dwarfs their potential recovery.

The effective vindication exception “would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights. And it would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable,” Justice Antonin Scalia wrote for the majority. “But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” (As many early commentators have noted, Justice Elena Kagan wrote a memorable rejoinder for the three Amex dissenters: “Here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.”)

The decision overturns a ruling by the 2nd Circuit Court of Appeals that permitted small businesses to proceed with an antitrust class action against Amex, despite arbitration agreements between the credit card company and the merchants suing over allegedly unfair fees. The majority’s reasoning will extend beyond arbitration over antitrust rights, however, and almost certainly beyond federal causes of action. There’s little doubt that one of the only other decisions to buck the Supreme Court’s 2011 pro-arbitration holding in AT&T Mobility v. Concepcion - a ruling last week by the Massachusetts Supreme Judicial Court, in a consumer case against Dell that raised similar issues of the affordability of pursuing individual claims through arbitration – will not survive Thursday’s Amex opinion. (Dell counsel John Shope of Foley Hoag told me that “it’s very clear” that under Amex, the Massachusetts ruling “is no longer good law, if it ever was.” The plaintiffs’ lawyer in the case,Edward Rapacki of Ellis & Rapacki, said his clients’ claims may yet survive under a slightly different theory.)

What hope remains for consumers, employees after SCOTUS Amex ruling?

Alison Frankel
Jun 20, 2013 21:51 UTC

The U.S. Supreme Court’s ruling Thursday in American Express v. Italian Colors has narrowed to an irrelevant pinhole the so-called “effective vindication exception” to mandatory arbitration. Despite dicta in previous Supreme Court cases that suggested arbitration clauses are not enforceable when it is prohibitively expensive for claimants to enforce their rights through the arbitration process, the five justices in the Amex majority held that plaintiffs who sign arbitration agreements don’t have the right to pursue their claims on anything but an individual basis, even if the cost of that pursuit dwarfs their potential recovery.

The effective vindication exception “would certainly cover a provision in an arbitration agreement forbidding the assertion of certain statutory rights. And it would perhaps cover filing and administrative fees attached to arbitration that are so high as to make access to the forum impracticable,” Justice Antonin Scalia wrote for the majority. “But the fact that it is not worth the expense involved in proving a statutory remedy does not constitute the elimination of the right to pursue that remedy.” (As many early commentators have noted, Justice Elena Kagan wrote a memorable rejoinder for the three Amex dissenters: “Here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.”)

The decision overturns a ruling by the 2nd Circuit Court of Appeals that permitted small businesses to proceed with an antitrust class action against Amex, despite arbitration agreements between the credit card company and the merchants suing over allegedly unfair fees. The majority’s reasoning will extend beyond arbitration over antitrust rights, however, and almost certainly beyond federal causes of action. There’s little doubt that one of the only other decisions to buck the Supreme Court’s 2011 pro-arbitration holding in AT&T Mobility v. Concepcion - a ruling last week by the Massachusetts Supreme Judicial Court, in a consumer case against Dell that raised similar issues of the affordability of pursuing individual claims through arbitration – will not survive Thursday’s Amex opinion. (Dell counsel John Shope of Foley Hoag told me that “it’s very clear” that under Amex, the Massachusetts ruling “is no longer good law, if it ever was.” The plaintiffs’ lawyer in the case,Edward Rapacki of Ellis & Rapacki, said his clients’ claims may yet survive under a slightly different theory.)

Should defendants fear new SEC policy on admissions in settlements?

Alison Frankel
Jun 19, 2013 22:23 UTC

Mary Jo White proved herself to be quite a shrewd strategist on Tuesday, when she made a surprise announcement at The Wall Street Journal’s annual CFO Network Event. The chair of the Securities and Exchange Commission said that the agency would no longer maintain a blanket policy permitting defendants to settle SEC cases without admitting to wrongdoing. “We are going to in certain cases be seeking admissions going forward,” White said, according to my Reuters colleague Sarah Lynch. “Public accountability in particular kinds of cases can be quite important and if we don’t get (admissions), then we litigate them.” White said that in cases involving “widespread harm to investors,” “egregious intentional misconduct” or obstruction of the SEC’s investigation, the agency may insist that defendants accept liability as a condition of settlement.

In an internal email Monday to the staff of the Enforcement Division, co-directors Andrew Ceresney and George Canellos provided a bit more detail than White did in her public remarks. “While the no admit/deny language is a powerful tool, there may be situations where we determine that a different approach is appropriate,” Ceresney and Canellos said in the email, which was provided to me by an SEC representative. “In particular, there may be certain cases where heightened accountability or acceptance of responsibility through the defendant’s admission of misconduct may be appropriate, even if it does not allow us to achieve a prompt resolution. We have been in discussions with Chair White and each of the other commissioners about the types of cases where requiring admissions could be in the public interest. These may include misconduct that harmed large numbers of investors or placed investors or the market at risk of potentially serious harm; where admissions might safeguard against risks posed by the defendant to the investing public, particularly when the defendant engaged in egregious intentional misconduct; or when the defendant engaged in unlawful obstruction of the commission’s investigative processes. In such cases, should we determine that admissions or other acknowledgement of misconduct are critical, we would require such admissions or acknowledgement, or, if the defendants refuse, litigate the case.”

That sounds like a major policy shift from an agency that has for decades permitted defendants to settle civil cases without admitting or denying the SEC’s allegations. Until last year, after all, even defendants who had already been convicted of financial crimes didn’t have to admit liability in settlements with the SEC. The neither-admit-nor-deny policy, as you know, has lately been criticized by a series of federal judges following the lead of U.S. Senior District Judge Jed Rakoff of Manhattan; and has been aggressively questioned by Senator Elizabeth Warren (D-Mass.). Given the public grumbling about the SEC’s perceived failure to obtain accountability from the financial institutions responsible for the economic crisis, it’s probably not an accident that White announced the agency’s new policy at an event well covered by reporters.

Supreme Court to resolve circuit split on timing of appeals

Alison Frankel
Jun 18, 2013 22:24 UTC

Once upon a time, ordinary lawyers appeared at the U.S. Supreme Court. If, by some chance, their client’s case defied long odds and made it onto the justices’ docket, lawyers who’d been on the litigation from its start would make a once-in-a-lifetime argument to the highest court in the land. Those days are mostly gone. As my brilliant Reuters colleague Joan Biskupic discussed Tuesday in a story about the competition to represent a pro se plaintiff whose petition for certiorari was granted last year, arguments at the Supreme Court have come to be the near-exclusive province of lawyers who specialize in this high-prestige, high-profile practice.

A case that the justices agreed Monday to hear in their upcoming term shows that the elite Supreme Court bar actually seems to be on the lookout for issues that will attract the justices’ attention even before cert petitions are filed. The case, Ray Haluch Gravel v. Central Pension Fund, raises the question of whether a federal district court’s ruling on the merits that leaves unresolved a request for contractual attorneys’ fees is a final decision – and thus appealable – or whether the decision is not appealable until the court has ruled on contractual attorneys’ fees. That’s a matter of consequence for parties deciding when to file their appeals, but certainly not a huge constitutional battle. Nor are the sums of money at issue – at most, about $350,000 in supposedly unpaid union contributions and attorneys’ fees – particularly notable, except for the Massachusetts landscaping company and union fund involved in the case. Both the landscaper and the union were represented in federal district court in Boston and at the 1st Circuit Court of Appeals by regional firms with fewer than 50 lawyers.

Yet both had top-notch Supreme Court counsel for their cert filings: Mayer Brown for Ray Haluch and the University of Pennsylvania Supreme Court Clinic for the union. Dan Himmelfarb of Mayer Brown and Stephanos Bibas of Penn declined to comment, but it’s a good bet that when the 1st Circuit issued its decision last September, noting a deep split in the federal circuits on whether contractual attorneys’ fees are collateral to the merits of a case, the Supreme Court bar suddenly became interested in an otherwise modest dispute between a small business and the union representing a few of its employees.

SCOTUS pay-for-delay ruling: New scrutiny for nonpharma patent deals?

Alison Frankel
Jun 17, 2013 21:08 UTC

In the U.S. Supreme Court’s ruling Monday on pay-for-delay settlements in the pharmaceutical industry – in which a brand-name drugmaker pays generic rivals to drop challenges to its patent, thus assuring its monopoly – five justices agreed with the Federal Trade Commission that the key question isn’t whether pay-for-delay deals exceed the scope of the brand-maker’s patent. Courts cannot simply rubber-stamp such settlements as presumptively legal, the majority said in FTC v. Actavis. But nor can they assume that pay-for-delay settlements are illegal by their very nature. Instead, according to the majority, trial courts must conduct a “rule of reason” analysis to determine whether reverse-payment settlements violate antitrust law.

Those inquiries, the majority concedes, are probably going to be “time consuming, complex and expensive” – a much less convenient alternative to the simple scope-of-the-patent test endorsed by the 11th Circuit Court of Appeals in the underlying case and by several other federal circuits in previous pay-for-delay suits by the FTC and private plaintiffs. But the scope-of-the-patent approach “throws the baby out with the bath water,” the majority said. A patent holder has monopoly rights only when its patent is valid, the very inquiry that is aborted through pay-for-delay settlements.

The justices concluded that trial judges need not conduct a full-blown inquiry into a patent’s validity to evaluate the anticompetitive impact of a pay-for-delay deal, but can consider (among other factors) the size of the reverse payment as a proxy for the patent’s weakness. “An unexplained large reverse payment itself would normally suggest that the patentee has serious doubts about the patent’s survival,” the majority said, in an opinion written by Justice Stephen Breyer. “And that fact, in turn, suggests that the payment’s objective is to maintain supracompetitive prices to be shared among the patentee and the challenger rather than face what might have been a competitive market – the very anticompetitive consequence that underlies the claim of antitrust unlawfulness.”

SCOTUS in Myriad: Federal Circuit doesn’t know what’s patent-eligible

Alison Frankel
Jun 13, 2013 22:34 UTC

Justice Clarence Thomas of the U.S. Supreme Court doesn’t come out and say so in his straightforward, rhetoric-free, 19-page opinion for a unanimous court in Association for Molecular Pathology v. Myriad Genetics, but the takeaway from the ruling is not only that human genes are not patentable in and of themselves but that the Federal Circuit Court of Appeals isn’t very good at interpreting patent-eligibility under Section 101 of the Patent Act. As the Supreme Court decision notes, the Federal Circuit panel that ruled Myriad has the right to composition patents on genes associated with breast cancer disagreed on the rationale. One judge said that isolated genes are chemically distinct from the molecules found in nature. Another cited longstanding Patent and Trademark Office policy on gene patentability. The third disagreed with both explanations. So too did the entire Supreme Court, which said the dispositive question is whether the purported invention is created or found in nature. Genes are found in nature, the court said, and thus not patent-eligible.

Myriad’s share price actually bumped up after the court’s ruling because the justices also held that synthetic composite DNA is eligible for patenting, and that biotech companies may still seek patents on applications for human genes. In that regard, the Supreme Court decision is good news for both researchers, who argued that patents should not be used to restrict their use of identified genes, and the biotech industry, which quite understandably wants to profit from its investment in gene isolation.

But if you’re an IP lawyer trying to advise clients on the patent-eligibility of their research and development projects, the Myriad ruling is yet another exasperating sign that you can’t rely on the Federal Circuit to decide issues that are supposed to be at the heart of its mission. The United States has a centralized court for patent appeals because Congress wanted a single set of experienced judges to offer definitive interpretations of IP law, which often involves highly technical but economically critical decisions. As former Federal Circuit JudgeArthur Gajarsa, now senior counsel at Wilmer Cutler Pickering Hale and Dorr, said in a speech in March, the court’s statutory mandate is “to normalize patent law … by establishing rules which district courts can follow.”

Law profs, ex-SEC chair protest CommonWealth arbitration bylaw

Alison Frankel
Jun 12, 2013 20:27 UTC

Remember the fight over a mandatory shareholder arbitration bylaw adopted by the board of CommonWealth, an embattled $8 billion real estate investment trust? As I told you last month, when a couple of activist hedge funds sued in Maryland state court to invalidate the 2009 bylaw as part of their hostile takeover bid for the REIT, Baltimore Circuit Court Judge Audrey Carrionruled that CommonWealth’s mandatory shareholder arbitration clause is enforceable. The hedge funds, which had acquired their shares after the bylaw was enacted, subsequently dropped the suit and agreed to arbitrate their claims that CommonWealth’s board had breached its fiduciary duty. But in the meantime, shareholders whose ownership predated enactment of the mandatory arbitration bylaw picked up the fight to invalidate the provision.

On Monday, after Judge Carrion granted their emergency motion to stay arbitration, lawyers for the Central Laborers’ Pension Fund and two individual CommonWealth shareholders filed their opposition to CommonWealth’s motion to compel arbitration. The brief – submitted by Bernstein Litowitz Berger & Grossmann, Saxena White, Berger & Montague, and Tydings & Rosenberg - repeats many of the arguments shareholders made in their emergency stay papers, citing a 2011 San Francisco federal court decision inGalaviz v. Berg that denied Oracle’s motion to dismiss a shareholder derivative suit because the company’s forum selection bylaw was imposed without the consent of shareholders who purchased stock before its enactment. Even though two of the plaintiffs in the CommonWealth derivative suit purchased additional shares after the 2009 mandatory arbitration bylaw took effect, the brief said, the third plaintiff did not. And in any event, according to the brief, shareholders never received adequate notice of a bylaw that impermissibly extinguishes their property rights and violates federal securities laws.

Shareholders have amassed some impressive support for their argument that, as a matter of policy, CommonWealth’s mandatory arbitration bylaw must be ruled invalid. A group of 11 securities law professors, including Bernard Black of Northwestern, John Coates of Harvard and James Cox of Duke (the first three signatories), assert in a joint affidavit that mandatory arbitration of shareholder disputes would undermine U.S. capital markets. “Absent the transparency and visibility provided by legal proceedings in an open courtroom, and the possibility of a rebuke by a judge, fiduciaries would be much less deterred from violating their duties to shareholders,” the joint filing said. “Thus, it is critically important that public shareholders be permitted to vindicate their rights in court.” In particular, the law professors took issue with a provision in the CommonWealth bylaw that bars the award of fees to plaintiffs’ lawyers, even if they prevail in the arbitration. That clause, the professors said, makes it too expensive for shareholders to bring breach-of-duty claims, thus insulating the board from accountability.

MBIA loses $100 million case vs flamboyant distressed debt investor

Alison Frankel
Jun 11, 2013 22:38 UTC

Is there any private equity investor with a more flamboyant personal style than Lynn Tilton, CEO of the distressed debt private equity firm Patriarch Partners? Tilton is Yale- and Columbia-educated and Wall Street-trained, but here’s the first impression she made in a 2011 interview with New York magazine: “Tilton’s lipstick is frosty pink, her eyelashes are long and inky black, her hair is Barbie-doll blonde, with curls spilling over cleavage that is invariably visible, invariably tan, invariably accentuated by a diamond necklace, and invariably supported by a tight-fitting garment made by one of her favorite designers. Today she has chosen a Roberto Cavalli miniskirt accessorized with spike-heeled suede boots and a fur-trimmed cape.”

Not your typical vulture fund investor, though Tilton did say, “There’s never been a carcass I wouldn’t put on my back.” (Patriarch’s current portfolio of 39 companies includes the Rand McNally map business, several cosmetics companies and a bevy of industrial concerns.) Forbes investigated whether Tilton should be included on its billionaires’ list in 2011 and ended up deciding that she’s probably worth at least $830 million, although the magazine found her so confounding a character that it produced an indelible week-long series of articlesabout (among other things) Patriarch’s predilection for extremely complex transactions and Tilton’s brassy, sex-tinged antics.

You might not think that a woman like Lynn Tilton would play well before a judge like U.S. Senior District JudgeRobert Sweet, who was appointed to the bench in 1978 and turned 90 years old last October. But it would be a mistake to underestimate either of them. In a 155-page decision issued late Monday in the bond insurer MBIA’s $100 million breach-of-contract suit against Patriarch, Judge Sweet found Tilton to be “vigorous, authoritative, informed and almost entirely supported by documentary evidence,” with a “clear and unshaken” recollection of her interactions with MBIA. “She was an effective witness and in the main entirely credible,” Sweet wrote. The judge even cited, in a footnote, an ABC News feature that called Tilton a “stylish job saver.”

The Wall Street Journal wins a round against Sheldon Adelson

Alison Frankel
Jun 5, 2013 22:40 UTC

Sheldon Adelson, the billionaire atop the Las Vegas Sands casino empire, must surely hold the unofficial U.S. record for appearances as a libel and defamation plaintiff. I’ve written before about Adelson’s quick trigger for libel claims, but he outdid himself this February when he sued Kate O’Keefe, a reporter for The Wall Street Journal in Hong Kong, over a December 2012 piece in which she and a co-author referred to him as “a scrappy, foul-mouthed billionaire from working-class Dorchester, Mass.” Adelson took exception to being described as “foul-mouthed,” but his underlying objection may have been to the premise of the article, which drew a contrast between Adelson and the equally abrasive but more polished former Sands China CEO Steven Jacobs, with whom Adelson has been engaged in litigation over the company’s casino operations in Macau. The Journal reporter whom Adelson sued in Hong Kong had previously written stories about Jacobs’s claim – asserted in legal filings in his Nevada wrongful termination action against the Sands – that Adelson had condoned a “prostitution strategy” at the Macau casino. Adelson, who subsequently sued Jacobs for defamation in Miami-Dade Circuit Court, seems to have regarded The Wall Street Journal as a favored recipient of leaks from his archenemy Jacobs.

But the casino magnate cannot pierce New York’s shield law for journalists in order to confirm those suspicions, according to a ruling last Friday by New York State Supreme Court Justice Donna Mills. Mills sued Kate O’Keefe, a reporter for The Wall Street Journalgranted a motion by the Journal’s lawyers at Davis Wright Tremaine to quash a third-party subpoena and deposition demand by Adelson in the Florida defamation litigation against Jacobs, finding that Adelson didn’t satisfy any of the three prongs of the test for overcoming the qualified reporters’ privilege. And according to the judge, even if Adelson were able to show that emails and phone records documenting contacts between Jacobs and the Journal were highly material and critical to his Florida case – the first two prongs of the test – he wouldn’t be able to show that there’s no alternative source for the information, since Adelson can get the material from Jacobs himself.

Mills’s ruling is good news for reporters because it’s “a classic example of the proper application of the New York shield law,” said Wall Street Journal counsel Laura Handman of Davis Wright. But it’s not the end of the paper’s Adelson problems. As Davis Wright asserted in a reply brief filed on March 15 in the New York quash litigation, the mogul and his lawyers at Olasov + Hollander and Coffey Burlington seem to expect that information from the Journal will aid Las Vegas Sands in its defense against Jacobs’s wrongful termination case in Nevada. Discovery in that suit has been stayed for a resolution of jurisdictional issues. In the meantime, Davis Wright contends, Adelson is trying to use the Florida defamation action and his Hong Kong suit against Journal reporter O’Keefe to obtain discovery.

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