Wachtell Lipton Discusses Important Supreme Court Business Cases Last Term and Next

The Supreme Court’s now-concluded October Term 2020 marked a slow return to normalcy following the disruption of the Covid-19 pandemic.  The Court released only 56 signed opinions — just a handful more than the prior Term, and well below the Roberts Court’s pre-pandemic average pace of 74.  Meanwhile, the Court continued a recent trend of robust activity on its so-called “shadow docket,” where it often resolves thorny issues presented in an emergency posture without oral argument and without a supporting description of its reasoning.  Resolved in this way were a number of commercially significant issues implicating pandemic-related emergency measures.  But despite this near-record low crop of new decisions, the Court decided several cases of significance to the business community.  We have summarized below those key developments and some important items to watch next Term.

Federal Securities Law. In Goldman Sachs v. Arkansas Teacher Retirement System, a unanimous Court held that defendants opposing class certification in securities fraud litigation can introduce evidence showing that alleged misstatements were too “generic” to affect an issuer’s share price.  (Our prior memo on the case is here.)  Although a six-Justice majority held that defendants bear the burden of persuasion to rebut price impact, all members agreed that “[i]n assessing price impact at class certification, courts should be open to all probative evidence on that question — qualitative as well as quantitative — aided by a good dose of common sense.”

Cybersecurity Law. In Van Buren v. United States, the Court rejected a construction of a key provision in the Computer Fraud and Abuse Act of 1986 (CFAA) that would have criminalized abuse of authorized access to information on a computer or network.  Van Buren involved a police officer who was authorized to access a license plate database, but had abused that access after taking a bribe.  The Court concluded that the CFAA does not reach such conduct, holding that the relevant provision targets only “unauthorized users” and those who “access[] a computer with authorization but then obtain[] information located in particular areas of the computer . . . that are off limits to” them.  The decision thus clarifies a loosely worded statute while sending a firm message that even authorized users of an entity’s systems cannot breach internal access barriers without serious consequence.  Companies using such internal barriers to control information and data access to specific groups of authorized users should consider using Van Buren as an occasion to reinforce the importance of strict adherence to such controls.

Alien Tort Statute. In recent years, the Court has closely scrutinized efforts to expand the extraterritorial application of the Alien Tort Statute (ATS).  That trend continued with Nestlé USA v. Doe, in which the Court reiterated that commonplace corporate activity within the United States will not subject a company to ATS liability for alleged misconduct overseas.  Plaintiffs in the case had sued two cocoa companies for “aiding and abetting forced labor” by providing resources to certain farms in Côte d’Ivoire.  The Court held that “operational decisions” the defendants allegedly made about these practices from within the United States could not trigger the ATS because operational decision-making is “an activity common to most corporations.”  That narrow holding left unresolved whether the statute may support claims for aiding and abetting overseas torts at all.  And the case raised fresh questions about the future of ATS litigation, with three Justices writing separately to support a restrictive interpretation of the statute that would preclude suit in a wide variety of cases.

Personal Jurisdiction. In Ford Motor Co. v. Montana Eighth Judicial District Court, the Court sought to clarify the parameters of so-called “specific jurisdiction” as applied to out-of-state defendants.  It held unanimously that Ford was subject to personal jurisdiction in states where accidents occurred, even though the cars involved were not designed, manufactured, or sold in those states, and even though Ford was not subject to “general jurisdiction” in those states.  Due process was satisfied because Ford engaged in systematic marketing of its vehicles in the states at issue, and because the claims were brought by in-state residents where the accidents occurred.  The Court explained that where “there is a strong ‘relationship among the defendant, the forum, and the litigation,’” the “‘essential foundation’ of specific jurisdiction” is in place, regardless of whether the claimed injury was directly caused by that relationship.

In a significant concurrence in the judgment, Justice Gorsuch, joined by Justice Thomas, called for the Court to revisit its personal jurisdiction jurisprudence and suggested that “corporations continue to receive special jurisdictional protections” for reasons that are unmoored from the original meaning of the Constitution.  Although the Roberts Court has been viewed as skeptical of efforts to expand the contours of personal jurisdiction, Ford marks a significant departure from the recent trend — one that merits careful attention by corporations as they structure their commercial activities to account for jurisdictional concerns.

Standing. Even as the Court expanded to some extent the scope of personal jurisdiction over corporate defendants, it tightened its test for plaintiffs to establish standing to bring claims.  By a 5-4 vote, the Court in TransUnion v. Ramirez held that members of a class who claimed TransUnion violated the Fair Credit Reporting Act by flagging them as terrorists or other criminals on credit reports could not bring claims unless their reports had been provided to third parties.  Those members whose reports had not been provided to third parties could not bring a claim because they had suffered no “concrete harm.”  While they had suffered an “injury in law,” they had not suffered the requisite “injury in fact,” and the risk of future harm was insufficient to support standing.

While TransUnion offers an important potential line of defense for corporations opposing federal class‑action claims, businesses should remain aware that “injury in fact” does not require a compensable injury; instead, as the Court held in Uzuegbunam v. Preczewski, where some actual harm is adequately pleaded, even a claim for nominal damages suffices to give a plaintiff standing.

Intellectual Property. In Google v. Oracle America, the Court held that Google’s copying of a portion of Oracle’s software constituted “fair use” and thus did not infringe Oracle’s copyright.  (Our prior memo on the case is here.)  Writing for a six-Justice majority, Justice Breyer explained that Google’s transformative implementation of code intended to facilitate inter-operability between programming environments fell within the bounds of fair-use doctrine.  While the decision blesses code copying in limited circumstances, businesses seeking fair-use protection would be well advised to carefully weigh and document the scope of any copying, the function of the code at issue, and the transformative use to which it is being applied.

Consumer Protection Law. In AMG Capital Management v. FTC, the Court issued the latest in a string of recent decisions reining in the enforcement powers of federal agencies.  (Our prior memo on the case is here.)  On the chopping block in AMG was the Federal Trade Commission’s authority to seek equitable monetary relief like restitution and disgorgement.  Giving a close, textualist reading characteristic of the Roberts Court’s approach to statutory interpretation, the Court unanimously rejected the FTC’s position that the “permanent injunction” language of the Federal Trade Commission Act authorizes court-ordered monetary relief.  At the same time, the Court noted that the Commission has statutory authority to pursue monetary relief in federal court where the Commission has engaged in underlying administrative proceedings, and further noted that the Commission can ask Congress to amend the Federal Trade Commission Act in its favor — a step the Commission is now taking.  Thus, while the AMG decision strips the FTC of one of its major enforcement weapons, the loss may be short-lived — particularly given President Biden’s call for more aggressive enforcement and the leadership of FTC Chair Lina Khan, who recently rescinded a policy statement limiting the scope of allegedly anticompetitive conduct the Commission would pursue.  (Our recent memo on these developments is here.)

“Takings” Law. Continuing a trend of gradual expansion in the protections afforded individuals and companies under the Fifth Amendment’s Takings Clause, the Court’s conservative majority overturned a California regulation permitting labor organizers to enter an agricultural business’s property for the purpose of soliciting union support.  In Cedar Point Nursery v. Hassid, the Court held that because the state had “physically acquire[d] private property for a public use” without compensation — albeit temporarily — the regulation constituted a “per se” constitutional violation.  Rejecting the argument that this ruling threatened commonplace government activities like health and safety inspections, the Court noted that under its recent precedents, such uncompensated intrusions can be required “as a condition of receiving certain benefits” where the condition “bears an ‘essential nexus’ and ‘rough proportionality’ to” its impact.  Beyond its immediate consequences for union access in the workplace, the decision potentially raises new arguments for companies resisting on-site regulatory inspection and enforcement.

Shortly after issuing Cedar Point, however, the Court rejected an invitation to revisit its landmark 2005 decision in Kelo v. New London — which reinforced the power of the state to seize “blighted” property for the purpose of private redevelopment.  Petitioners in Eychaner v. Chicago had urged the Court to either reconsider Kelo or else cabin it by prohibiting the condemnation of properties based on the “possibility of future blight.”  On the final day of the Term, the Court declined to take up the appeal.

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The Court has already calendared several cases for October Term 2021 that could have significant effects on commercial litigation and the business community.  In Pivotal Software v. Tran, the Court will consider whether the discovery stay mandated by the Private Securities Litigation Reform Act applies to Securities Act actions brought in state court — a question that has taken on heightened importance in the wake of the Court’s 2018 decision in Cyan v. Beaver County Employees Retirement Fund, which held that state courts have concurrent jurisdiction over Securities Act class actions.  In American Hospital Association v. Becerra, the embattled Chevron doctrine — which requires courts to defer to reasonable agency interpretations of ambiguous federal statutes — will face its latest test.  And in Hughes v. Northwestern University, the Court will address whether the Employee Retirement Income Security Act of 1974 creates a right of action against retirement plan fiduciaries when a plan charges fees that are excessive in comparison to cheaper alternatives.

The Court is also slated to decide a pair of significant decisions bearing on arbitration.  In Badgerow v. Walters, the Court will address whether federal courts have jurisdiction to consider petitions to confirm or vacate arbitration awards under certain sections of the Federal Arbitration Act where the only basis for such jurisdiction is that the underlying dispute involves a federal question.  And in Servotronics v. Rolls-Royce, the Court will decide whether district courts may order discovery in support of private foreign arbitration under a federal statute that authorizes courts to compel testimony or document production “for use in a proceeding in a foreign or international tribunal.”

We will continue to closely monitor developments when the Court returns from its summer recess and begins its October Term 2021, and will note any additional cases that warrant close attention from the business community.

This post comes to us from Wachtell, Lipton, Rosen & Katz. It is based on the firm’s memorandum, “Important Supreme Court Business Cases Decided During October Term 2020 and Cases to Watch in October Term 2021,” dated July 14, 2021.

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