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Posts Tagged ‘United States Supreme Court’

In the Driver’s Seat: Supreme Court Hears Oral Arguments in Kansas v. Glover

Posted on: November 11th, 2019

By: Rachael Slimmon

On November 4, the United States Supreme Court held oral arguments in the case of Kansas v. Glover.  The Court examined whether a police officer may conduct a traffic stop solely because the vehicle’s registered owner has a suspended license.  The case started in 2016, when a Kansas police officer ran the license plate on Charles Glover’s truck.  Mr. Glover had a suspended license, so the officer pulled over the truck.  At trial, the parties stipulated that the officer assumed the owner was the driver, and the officer did not testify.

The Fourth Amendment of the Constitution forbids “unreasonable searches and seizures.”  For traffic stops, longstanding precedent requires that police officers have “reasonable suspicion” of a crime before they can pull over a vehicle and conduct a traffic stop.

The Justices, particularly Justice Gorsuch, gave conflicting indications about their views during oral arguments.  Justice Gorsuch first appeared concerned that the officer did not testify about his training and experience.  Gorsuch indicated that this lack of officer testimony meant there were no facts behind the officer’s assumption that a vehicle owner is the vehicle driver, and no facts from which to draw reasonable suspicion.  Later, however, Justice Gorsuch opined that requiring an officer to testify and say “magic words” about his training and experience would be formalistic and unhelpful.  Many of the Justices also seemed to disagree whether it was common sense to assume that a vehicle’s owner is the driver, with Justice Breyer appearing most willing to accept that assumption.

Mr. Glover’s attorney proposed multiple options for officers to gain additional evidence before pulling a car over: visually checking to see if the driver is similar in age and gender to the vehicle owner, following the car to wait for another traffic violation, and using statistical studies.  Multiple Justices questioned the wisdom and practicality of these other measures.

If the Court finds the traffic stop unconstitutional, Kansas v. Glover could impose minor or significant changes to law enforcement practices.  Justice Alito summed up the main issue: “What you are proposing is either a trivial decision or a revolutionary decision. It’s a trivial decision if all who’s lacking here is a statement [of the officer’s training and experience] … It’s a revolutionary decision if in every case involving reasonable suspicion there has to be a statistical showing or an examination of all” the additional evidence that Mr. Glover’s attorney proposed.

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

United States Supreme Court to Decide Whether Georgia Law can be Copyrighted

Posted on: July 15th, 2019

By: Jason Kamp

The United States Supreme Court recently agreed to decide whether the annotations contained in the Official Code of Georgia Annotated (OCGA.) can be copyrighted by the state of Georgia, granting certiorari in State of Georgia, et al. v. Public.Resource.org, Inc., Case No. 18-1150 (S. Ct. June 24, 2019).

As explained by the 11th Circuit Court of Appeals, “In most states the ‘official’ code is comprised of statutory text alone, and all agree that a state’s codification cannot be copyrighted because the authorship is ultimately attributable to the People. Conversely, all agree that annotations created by a private party generally can be copyrighted because the annotations are an original work created by a private publisher. But the annotations in the OCGA are not exactly like either of these two types of works. Rather, they fall somewhere in between — their legal effect and ultimate authorship more indeterminate.” State of Georgia, et al. v. Public.Resource.org, Inc., 906 F.3d 1229, 1232 (11th Cir. 2018).

Unlike most official state codes, Georgia’s official code is annotated with non-statutory text.  This text includes summaries of judicial decisions, editor’s notes, research references, notes on law review articles, summaries of Attorney General opinions and other materials.  “The Code itself makes clear that these annotations are a part of the official Code, stating that the statutory portions of the Code ‘shall be merged with annotations… and [are] published by authority of the state …and when so published [are to] be known and may be cited as the ‘Official Code of Georgia Annotated.’ O.C.G.A. § 1-1-1.”  Id. at 1233.

The annotations are developed by a private party, LexisNexis, according to a contract with the State of Georgia. This contract specifies the type of annotations that appear with the statutory text and requires that LexisNexis present the content in a specific manner.  A state commission supervises the work LexisNexus performs and holds final editorial control. The Georgia legislature then adopts the annotations as their own, merging them with the statutory text in a process similar to passing the underlying laws. The State of Georgia holds the copyrights to the annotations LexisNexus creates.

Litigation over the copyrighted annotations began when a non-profit organization purchased and scanned all 186 printed volumes of the Official Code of Georgia Annotated and posted them to its free website.  The state sued and won in the district court.  Late last year the 11th Circuit Court of Appeals reversed, holding Georgia’s official code annotations are sufficiently “law-like” to be considered a work created by the state and outside the realm of copyrightable material.

The United State Supreme Court does not grant cert to affirm a lower court’s decision nearly as often as it does to reverse.  However, this case resides at the tension point between two American values: equal access to democratic institutions and private property rights.  Perhaps the Court merely wants to weigh in.

If you have questions or would like more information, please contact Jason Kamp 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].

Supreme Court to Revisit Liability Under Rule 10b-5 – Will Prospective Justice Kavanaugh Weigh In?

Posted on: July 25th, 2018

By: Ted Peters

Section 10(b) of the Securities Exchange Act, and Rule 10b-5 promulgated under it, makes certain conduct in connection with the purchase or sale of any security unlawful.  Specifically, Rule 10b-5(a) prohibits the use of any “device, scheme, or artifice to defraud.”  10b-5(b) prohibits the use of any “untrue statement of a material fact” or the omission of any “material fact necessary in order to make the statements… not misleading.”  And 10b-5(c) prohibits “any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.”

In Janus Capital Group, Inc. v. First Derivative Traders, 131 S. Ct. 2296 (2011), the United States Supreme Court addressed whether a mutual fund investment adviser could be held liable under Rule 10b-5 for false statements included in its client mutual funds’ prospectuses.  The Court concluded that the adviser could not be held liable under the rule because it did not make the statements in the prospectuses.

In Lorenzo v. Securities and Exchange Commission, 872 F.3d 578 (2017), the D.C. Circuit Court of Appeal considered whether a registered representative of a broker-dealer, who allegedly emailed false and misleading statements prepared by his boss to investors, could be found liable under Rule 10b-5.  Initially, the case was tried before an Administrative Law Judge who concluded that Lorenzo’s boss had drafted the emails in question; Lorenzo did not read the text of the emails; and Lorenzo had “sent the emails without even thinking about the contents.”  The judge also found that the emails were sent “at the request” of Lorenzo’s boss.  Notwithstanding these findings, the judge nevertheless concluded that Lorenzo had willfully violated securities laws (i.e., that Lorenzo had acted with an intent to deceive, manipulate or defraud).  As a sanction, the judge not only fined Lorenzo, but also imposed a lifetime suspension effectively barring him from the securities industry.

Lorenzo appealed the ruling before the Securities Exchange Commission.  The Commission affirmed, concluding that Lorenzo himself was “responsible” for the contents of the emails his boss asked him to send even though it was undisputed that Lorenzo’s boss had prepared the contents of the emails and that Lorenzo had simply “cut and pasted” the contents into the emails at issue.  Notably, the SEC found that Lorenzo’s conduct triggered liability under each of the subparts of Rule 10b-5, including 10b-5(b) which, under Janus, necessarily required an affirmative finding that Lorenzo had actually “made” the statements in question.

Lorenzo next appealed to the D.C. Circuit Court.  On September 29, 2017, a divided court upheld the SEC’s determination.  The court agreed that there was substantial evidence that the statements in Lorenzo’s emails were false or misleading and that Lorenzo possessed the requisite intent to mislead, deceive or defraud. However, the court disagreed with the SEC’s determination that Lorenzo was the “maker” of the statements as required by Rule 10b-5(b).  “We conclude that Lorenzo did not ‘make’ the false statements at issue for purposes of Rule 10b-5(b) because Lorenzo’s boss, and not Lorenzo himself, retained ‘ultimate authority’ over the statements.” [Citing Janus.]  On this basis, the court set aside the sanctions and remanded the case to enable the SEC to reassess appropriate penalties.

Judge Brett Kavanaugh, the current presidential nominee to fill the vacancy left by Justice Kennedy, penned a strongly worded dissent.  Kavanaugh criticized the conclusion reached by his colleagues that the “scheme liability” provisions of Rule 10b-5(a) and (c) may be used to find liability even where the defendant is not the “maker” of the statements (and thus not liable under 10b-5(b)).

On June 18, 2018, the U.S. Supreme Court granted the petition for writ of certiorari.  The question before the Supreme Court is simple: Can a defendant be held liable under the so-called scheme liability provisions of Rule 10b-5(a) and (c) in connection with using false or misleading statements, even if that defendant is not the “maker” of the statements?  That the Court accepted certiorari certainly suggests that the Court desires to further define the scope and limitations of Rule 10b-5.

Should Kavanaugh be confirmed as the next Supreme Court Justice, it remains to be seen whether he will recuse himself on the grounds that he heard the case below.  If he does, then the Court could well end up with a 4-4 split, which would effectively affirm the lower court’s ruling.  The Court’s four more liberal justices (Breyer, Ginsburg, Sotomayor and Kagan) each dissented from Janus.  On the other hand, if Kavanaugh is confirmed and does not recuse himself, the majority of the Court will likely endorse a more restrictive interpretation of scheme liability under Rule 10b-5.

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