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Posts Tagged ‘supreme court’

BREAKING – Supreme Court Severs Government-Debt Exception From TCPA

Posted on: July 7th, 2020

By: Matt Foree

Yesterday, the Supreme Court of the United States issued its decision in Barr vs American Association of Political Consultants, Inc. As we reported earlier here, this case deals with the constitutionality of the government-debt exception to the Telephone Consumer Protection Act (“TCPA”). In a 2015 amendment to the TCPA, Congress exempted from the robocall prohibition calls “made solely to collect a debt owed to or guaranteed by the United States.” The Supreme Court decision, in an opinion written by Justice Kavanaugh, determined that the government-debt exception (the “Exception”) is unconstitutional and severed it from the statute.

In analyzing the Exception, the court first looked at the question of whether the robocall restriction, with the Exception, is content-based. The Court found that, under the TCPA, the constitutionality of a robocall turns on whether it is made solely to collect a debt owed to or guaranteed by the United States. The Court noted that a robocall that says “Please pay your government debt” is legal while a robocall that says “Please donate to our political campaign” is illegal. According to the Court, “[t]hat is about as content-based as it gets.” Because the law favors speech made for collecting government debt over political and other speech, the Court found that the law is a content-based restriction on speech. Accordingly, under the Court’s precedents, a law that is content-based is subject to strict scrutiny. The Government conceded that it could not satisfy strict scrutiny to justify the Exception and the Court agreed.

The Court then considered whether to invalidate the entire robocall restriction under the TCPA or instead invalidate and sever the Exception. The Court agreed with the Government that it must invalidate the Exception and sever it from the remainder of the statute. In doing so, the Court reviewed general severability principles. Among other things, the Court determined that its precedents have steered it to a presumption of severability. As Justice Kavanaugh stated, “Applying the presumption, the Court invalidates and severs unconstitutional provisions from the remainder of the law rather than razing whole statutes or Acts of Congress.  Put in common parlance, the tail (one unconstitutional provision) does not wag the dog (the rest of the codified statute or the Act as passed by Congress).” The Court further stated that “[c]onstitutional litigation is not a game of gotcha against Congress, where litigants can ride a discrete constitutional flaw in a statue to take down the whole, otherwise constitutional statute.”

The Court then noted that before severing a provision and leaving the remainder of a law intact, the Court must determine that the remainder of the statute is capable of functioning independently and will be fully operative as a law. The Court noted that the Communications Act of 1934, to which the TCPA is an amendment, includes an express severability clause stating, “If any provision of this chapter or the application thereof to any person or circumstance is held invalid, the remainder of the chapter and the application of such provision to other persons or circumstances shall not be affected thereby.” The Court held that the Exception added an unconstitutional, discriminatory exception to the robocall restriction of the TCPA. It further determined that the text of the severability clause squarely covers the unconstitutional Exception and requires severance. The Court held that even if the text of the severability clause did not apply here, the presumption of severability would require that the Court sever the Exception from the remainder of the statute.

In sum, the Court held that by carving out an exception that allowed robocalls made to collect government debt, Congress favored debt-collection speech over plaintiff’s political speech. Accordingly, the Court held that the Exception was unconstitutional and cured the violation by invalidating the Exception and severing it from the remainder of the TCPA.

The Supreme Court’s long-awaited decision lays to rest speculation that the Court would strike down the entire statute as unconstitutional.  As such, it appears that litigation will continue, with several issues outstanding concerning the troubled statute, including the ongoing issue with the patchwork of decisions related to the requirements of an “automatic telephone dialing system” under the TCPA. Only time will tell if these and other issues will be remedied in the near future. 

If you have any questions or would like more information, please contact Matt Foree at [email protected].

Can Governments be Liable for Mass Shootings under the Constitution?

Posted on: February 11th, 2019

By: Phil Savrin

The recent tragedies of mass shootings have spawned litigation over the civil liabilities of state governments for failing to protect members of the public from harm, particularly when there were advance warning signs that police departments overlooked or ignored. To evaluate whether States can be liable under the Constitution for such conduct we need to reach back 30 years to a decision by the Supreme Court called DeShaney. In that case, county officials had allowed an abused child to remain in a household despite knowledge of mistreatment, after which the boy was left permanently disfigured. In considering a civil rights claim brought on his behalf under the due process clause, the Supreme Court reasoned that the Constitution places limitations on the government’s ability to act and does not affirmatively require it to provide services that benefit the public. It is up to the individuals States to allocate resources to provide for public safety, in other words, as opposed to an obligation mandated by the Due Process Clause. That said, the Supreme Court reasoned that it is only when the State takes some action that puts a person in peril that the Constitution imposes “some corresponding duty to assume some responsibility for his safety and general well-being.”

Cases applying DeShaney’s reasoning are often heart-wrenching, as they tend to involve very egregious injuries that could have been avoided had law enforcement officers acted on knowledge they possessed. The most extreme example applying DeShaney can be found in the Supreme Court’s 2005 decision in Town of Castle Rock, where police officers refused the desperate pleas of a citizen to arrest her estranged husband who had violated a restraining order, resulting in the father’s murder of the couple’s three daughters. These harms could have been avoided had the State acted to intercede, yet it is only when the State by its conduct affirmatively puts the person in danger that the State has a constitutional obligation to protect that individual from harm.

Which brings us to the question of mass shootings such as the incidents at the Pulse nightclub in 2016 where a gunman killed 49 people or the high school in Florida in 2018 where a student opened fire killing 17 persons. In lawsuits that followed, allegations were made that government officials either ignored warnings or intentionally failed to act, thereby violating the constitutional rights of the victims. In both circumstances, however, the federal courts applied DeShaney to conclude that without danger created affirmatively by the State’s conduct, there is no constitutional right to protection where the harm begins and ends with the actions of a private citizen.

The absence of a constitutional claim in these circumstances does not, of course, mean that there can be no remedy of any sort. What these cases hold instead is that any such remedy exists by reference to state law as the federal Constitution is a bulwark against governmental interference in the public arena and is not a guarantor of safety for the citizenry.

If you have any questions or would like more information, please contact Phil Savrin at [email protected].

Federal Securities Laws: Has the 9th Circuit Gone Rogue Again?

Posted on: February 4th, 2019

By: John Goselin

On January 4, 2019, the United States Supreme Court decided to hear an appeal from the Ninth Circuit’s April 20, 2018 decision in Varjabedian v. Emulex Corporation, 888 F.3d 399 (9th Cir. 2018). The Supreme Court is hearing this case to resolve a circuit split regarding whether a claim under Section 14(e) of the Securities Exchange Act of 1934 requires the plaintiff to plead a strong inference that the defendants acted with scienter (i.e. intent to defraud) or whether Section 14(e) merely requires an allegation that the defendants were negligent. Section 14(e) is a provision of the Securities Exchange Act of 1934 that prohibits a company involved in a tender offer from making a material misstatement or omit to state any material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading or to engage in any fraudulent, deceptive or manipulative acts or practices in connection with a tender offer.

Prior to the 9th Circuit’s April 20, 2018 opinion, no Circuit split had existed. Over the course of the forty-five preceding years, the Second, Third, Fifth, Sixth and Eleventh Circuits had uniformly held that Section 14(e) required a plaintiff to plead scienter when stating a claim pursuant to Section 14(e). Despite four and half decades of consensus, the 9th Circuit concluded that every Circuit Court to address this particular issue previously had simply gotten it wrong and that if the Supreme Court considered the issue, the Supreme Court would conclude that Section 14(e) only required the plaintiff to plead negligence.

Until recently, plaintiffs had historically chosen to challenge tender offers in state court, most often Delaware state court, pursuant to state law disclosure obligations. Challenging tender offers is big business as almost every tender offer conducted results in multiple state court class action lawsuits seeking injunctions to halt the tender offers until so-called disclosure deficiencies are rectified. The cases are high profile, high risk and involve significant legal defense costs that D&O carriers often end up paying pursuant to the provisions of D&O insurance policies.  The plaintiff’s lawyers have historically been successful in playing the role of the troll under the bridge collecting hefty tolls (a.k.a legal fees) for “improving” disclosures in tender offers as the tender offer participants seek to avoid the risk of a potential injunction that could halt the tender offer.

Recently, however, the Delaware state courts where the majority of these cases have been pursued have been clamping down on these “disclosure claims” making the state court forum less lucrative for the plaintiff’s bar. Hence, the plaintiff’s bar has been turning increasingly to Section 14(e) of the Securities Exchange Act of 1934 as an alternative cause of action in a federal forum in an effort to continue collecting their attorney fee tolls. The problem, however, is that if Section 14(e) requires the plaintiff to plead “scienter” and the plaintiff wants to bring a class action to put maximum pressure on the company, the plaintiff would have to comply with the heightened pleading requirements of the Private Securities Litigation Reform Act of 1995 and plead facts, not conclusory statements, sufficient to support a “strong inference” of scienter. The plaintiff’s bar would very much like to avoid this particular pleading, and burden of proof, hurdle.

So, the 9th Circuit’s decision adopting a mere negligence standard is a very big deal creating a window through which the plaintiff’s bar hopes to continue their troll under the bridge strategy at least out West and provides the plaintiff’s bar a new opportunity to challenge the prior holdings in the other Circuit Courts. The Supreme Court, however, has taken the opportunity to decide the issue and will either shut this particular door quickly or swing it wide open by deciding the issue of negligence or scienter for Section 14(e) claims.  Every securities lawyer in America will be watching closely.

If you have any questions or would like more information, please contact John Goselin at [email protected].

The Supreme Court Weighs in on Arbitrability, But Questions Remain

Posted on: January 31st, 2019

By: Ted Peters

As reflected in a prior article, the United States Supreme Court recently agreed to take another look at the issue of arbitrability. In the case of Henry Schein, Inc. v. Archer & White Sales, Inc., the Fifth Circuit concluded that the court, and not an arbitrator, had the power to decide the threshold issue of arbitrability. In its ruling, the circuit court embraced the “wholly groundless” argument, concluding that submission of the dispute to the arbitrator was unnecessary because the assertion of arbitrability was “wholly groundless.” This decision underscored the ongoing split of authority among the lower courts wherein some courts, but not all, recognize the “wholly groundless” exception. On appeal, the appellants sought to have the Supreme Court reject the exception as inconsistent with the Federal Arbitration Act (“FAA”), the purpose of which is “to ensure that private agreements to arbitrate are enforced according to their terms.”

On January 8, 2019, newly appointed Justice Kavanaugh delivered the opinion of the court vacating and remanding the Firth Circuit’s decision. Writing for a unanimous court, Kavanaugh determined that the “wholly groundless” exception to the general rule that courts must enforce contracts that delegate arbitrability questions to an arbitrator is inconsistent with the FAA and Supreme Court precedent. Not surprisingly, the opinion revisited a number of prior cases in which the Court repeatedly held that the “agreement to arbitrate a gateway issue is simply an additional… agreement the party seeking arbitration asks the federal court to enforce, and the [FAA] operates on this additional arbitration agreement just as it does on any other.” (Opinion at p. 4, quoting Rent-A-Center, 561 U.S. 63, 70 (2010)). Kavanaugh noted that the Court had frequently rejected the argument that a claim of frivolity can derail the parties’ agreement to vest questions of arbitrability with an arbitrator and not a court. Citing Steelworkers v. American Mfg. Co., 363 U.S. 564, 568 (1960), Kavanaugh stated: “A court has ‘no business weighing the merits of the grievance’ because the ‘agreement is to submit all grievances to arbitration, not merely those which the court will deem meritorious.’”

On January 15, 2019, the Court issued a ruling in yet another case involving arbitration, New Prime Inc. v. Oliveira. Justice Gorsuch delivered the opinion of the court. In an 8-0 decision (Kavanaugh took no part in the consideration or decision of the case), the high court affirmed the First Circuit’s determination that a court should determine whether the Federal Arbitration Act’s Section 1 exclusion for disputes involving the “contracts of employment” of certain transportation workers applies before ordering arbitration. Unlike Henry Schein, which addressed the delegation of “gateway” questions of arbitrability, New Prime Inc. involved the judicial assessment of a statutorily based objection to arbitration.

But wait… there’s (one) more: Lamps Plus Inc. v. Varela, Dkt. No. 17-988. That case, argued on October 29, 2018, addresses whether the FAA forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements. An opinion is expected at any time.

Coming full circle, it is fairly clear that the high court seems to remain firm in its embrace of arbitration agreements without permitting judicial meddling, provided there is “clear and unmistakable evidence” that the parties affirmatively agree to delegate the decision of arbitrability to the arbitrator. (Henry Schein at p. 6, citing First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 944). Yet, at the same time, the Justices appear receptive to judicial involvement as long as there is a reasonable statutory basis for it.

The takeaway? Parties to arbitration agreements should rest confident in their ability to affirmatively delegate disputes to arbitration provided that the statutory framework upon which arbitration is based leaves no basis for judicial tinkering. This may provide solace for some, but for many it leaves unanswered questions along with the risks and costs associated with uncertainty.

If you have questions or would like more information, please contact Ted Peters at [email protected].

Yelp Can’t Be Ordered to Remove Defamatory Reviews by A California Lawyer’s Unhappy Former Clients

Posted on: December 3rd, 2018

By: Frank Olah

On July 2, 2018, in Hassell v. Bird (2018) 5 Cal.5th 522, the California Supreme Court held that Section 230 of the Communications Decency Act of 1996 prohibits courts from ordering Yelp to remove defamatory consumer reviews posted by an attorney’s former client.

Section 230 states that “[n]o provider or user of an interactive computer service shall be treated as the publisher or speaker of any information provided by another information content provider.” Moreover, “[n]o cause of action may be brought and no liability may be imposed under any State or local law that is inconsistent with this section.”  (Section 230(e)(3).)

The Hassell court held that Section 230’s broad immunity protects “interactive computer services” such as Yelp from defamation liability even in circumstances where Yelp was not itself sued for defamation. The court reasoned that a defamed plaintiff should not be able to avoid the immunity protections of Section 230 by intentionally not naming Yelp as a defendant. Instead, some defamed plaintiffs tried to circumvent Section 230’s immunity by enforcing a judgment against the defamer defendant, and then using the judgment and injunction to remove the defamatory Yelp posts. Such a strategic end-run around Section 230 is not permitted.

In June 2012, Ava Bird hired attorney Dawn Hassell to prosecute a personal injury lawsuit. After a few months, Hassell concluded Bird was unhappy and withdrew. Bird posted negative reviews on Yelp about Hassell’s lawyering skills. Hassell asked Bird to remove them; Bird declined. Hassell proceeded to sue only Bird for libel.

After a default prove-up hearing, the trial court entered judgment for Hassell for $557,919 in damages, apparently caused by three one-star Yelp reviews. The trial court also ordered both Bird and Yelp to remove the three defamatory reviews. Upon being served with the court’s order, Yelp moved to set aside and vacate the default judgment. The trial court denied the motion. The Court of Appeal affirmed. It found the removal order did not did not impose any “liability” on Yelp, as that term is used in Section 230(e)(3), since the default judgment and damages were against Bird and not Yelp.

The California Supreme Court reversed. It observed that the “immunity provisions within section 230 have been widely and consistently interpreted to confer broad immunity against defamation liability for those who use the Internet to publish information that originated from another source.” (Id. at 535.) It found that “lawsuits seeking to hold a service provider liable for its exercise of a publisher’s traditional editorial functions—such as deciding whether to publish, withdraw, postpone or alter content—are barred.” The Court found that Section 230 confers “blanket immunity from tort liability for online republication of third party content.” The Court reasoned that subjecting companies like Yelp to defamation liability for the republication of online content would tend to chill online speech. This chilling effect could materialize in the high costs for companies like Yelp of having to investigate potentially defamatory postings.

The Court found that Yelp was being held to account for nothing more than its ongoing decision to publish the challenged reviews. The Court concluded that Hassell’s legal remedies lay solely against Bird, and could not extend to Yelp. Notably, the Court ruled that Hassell had powerful remedies available to her, i.e. “the judgment requires Bird to undertake, at a minimum, reasonable efforts to secure the removal of her posts. A failure to comply with a lawful court order is a form of civil contempt… the consequences of which can include imprisonment.”

On October 18, 2018, Hassell filed a petition for writ of certiorari urging the United States Supreme Court to review the decision, which she argue renders California courts powerless to compel companies like Yelp to remove clearly unlawful content. Apparently, Hassell is not convinced that pursuing a contempt order against Bird and demanding that her former client be thrown in jail will improve her Yelp rating.

One criticism of the Hassell Court’s reasoning is its naïve willingness to adopt the fiction that Yelp is just a folksy old-fashioned newspaper publisher exercising a publisher’s traditional editorial functions. The reality is that Yelp applies its own judgment to award star ratings to businesses. In this case, Hassell claimed that the manner in which Yelp utilized Bird’s reviews caused its rating to drop to 4.5 stars. The trial court had observed that Yelp featured one of Bird’s defamatory reviews as a “Recommended Review” and that Yelp had not factored many positive reviews into Hassell’s overall rating. That is to say, Yelp promoted Bird’s negative reviews and gave them greater weight than many more positive reviews causing Hassell’s star-rating to drop.  And the lower Yelp star-rating caused Hassell to lose business.

Perhaps the U.S. Supreme Court will not want to parse the issue so finely. But Congress may wish to consider whether it makes sense to update Section 230 to allow a company like Yelp to be compelled to remove postings that the original poster was ordered to remove.

If you have any questions or would like more information, please contact Frank Olah at [email protected].