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Corporate Counsel Connect collection

August 2015 edition

The top cases of the Supreme Court's next term

Jeremy Byellin, JD

Jeremy ByellinWith the start of the next Supreme Court term only a little less than two months away, there are already a number of important cases on the docket of which corporate counsel should take note. Although more will almost certainly be added to this list as the term progresses, here are the top four cases currently set for review by the high court.

Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Manning

Manning involves a federal jurisdictional question relating to violations of the Securities Exchange Act of 1934. In the case, shareholders of Escala Group, a New York-based group of companies specializing in collectibles, sued a number of equity trading firms, including Merrill Lynch, UBS Securities, and E-Trade Capital Markets, alleging that the firms manipulated the price of Escala stock via a series of "naked short sales" – causing the price of Escala stock to become artificially deflated.

The details of the allegedly fraudulent activity aren't necessarily central to the issues presented to the Supreme Court. Instead, what will determine the outcome of this case is how the Court interprets Section 27 of the Securities Exchange Act, which gives federal courts "exclusive jurisdiction of violations of this title or the rules and regulations thereunder."

Since "naked short sales" are explicitly prohibited by Regulation SHO, which was enacted by the Securities and Exchange Commission (SEC) in 2004 pursuant to its authority under the Act, there doesn't appear to be any real question that federal courts have jurisdiction over this case, right?

If that were so, of course, the Court wouldn't have agreed to review Manning. Rather, the dispute arises from the fact that the original complaint based all of its claims on violations of the laws of the state of New Jersey, in the state courts of which the action was originally filed. As such, and as the Court of appeals noted, the resolution of this particular lawsuit does not depend on Regulation SHO. Nevertheless, the allegations in the complaint amount to a violation of the regulation, even if the complaint did not explicitly reference it.

Why such a big dispute over jurisdiction? Because federal courts are generally friendlier to large corporations than state courts. If the Court sides with the defendants in finding that any securities violation claim that could have been brought in federal court must be brought in federal court, state courts will find virtually all securities lawsuits taken out of their hands.

Tyson Foods v. Bouaphakeo

Tyson is a major class action certification case that may provide more clarity to the Court's previous landmark decision on class action certification: 2011's Wal-Mart Stores v. Dukes. In Tyson, hourly workers at one of Tyson's pork-processing facilities sued their employer for allegedly failing to compensate them for their time spent donning and doffing their required personal protective equipment and walking to and from their workstations.

The district court certified the class even though "the class contains hundreds of members who were not injured and have no legal right to any damages," and further determined liability and damages "with statistical techniques that presumed" the claims of all class members to be "identical to the average observed in a sample."

Considering the Court's conclusions in its 2011 decision on the matter, the odds don't look to be particularly good for the certified class. But regardless of how the case turns out, the Court will almost certainly expand on some of the conclusions from Dukes – with major implications for class action lawsuits now and in the future.

Campbell-Ewald Company v. Gomez

Gomez is another major class action case set to be resolved by the Court in its upcoming term. Rather than dealing with the issue of certification, though, Gomez revolves around whether a case becomes moot when a plaintiff "receives an offer of complete relief on his claim," and additionally "whether the answer to the first question is any different when the plaintiff has asserted a class claim ..., but receives an offer of complete relief before any class is certified."

If the Court were to rule in the affirmative on both questions, it would allow class action defendants to stall or even defeat potential class action suits by simply making an offer of complete relief to the plaintiff seeking to represent the class. After all, paying settlements to a series of potential class representatives is often less expensive than paying a large class-wide settlement, not to mention the legal fees and costs associated with litigating such a case.

Whether the Court treads down this path remains to be seen, but even an affirmative resolution to the first question alone would have a significant impact on individual federal court litigation.

Robins v. Spokeo, Inc.

This final case also deals with the issue of damages – but instead of whether a settlement offer makes a plaintiff whole, Robins raises the question of whether a plaintiff who has alleged no injury-in-fact, but instead relies upon a claim that a right created by federal statute has been violated, has standing to sue in federal court.

This case is about Thomas Robins, who sued "people search engine" Spokeo, Inc., for furnishing inaccurate information about him, including that he had more education than he actually did, was financially better off than he actually was, and he was married when he remains single. Although he has yet to suffer any concrete harm from the publication of this information, Robins claims that it would make it more difficult for him to find a job (Robins is currently unemployed), and to get credit and insurance.

The case is being closely watched by a number of parties, and notably by major technology companies such as Facebook, Google, Yahoo, and eBay, who have filed an amicus brief in support of Spokeo. And it's no wonder that these companies and others have taken a strong interest in the case: If the Court were to rule in favor of Robins, any party that publishes inaccurate personal information online about another would likely find themselves on the business end of a host of lawsuits, despite the fact that the plaintiffs had suffered no concrete injury from the publication.

While such an outcome may appear unlikely, the Court may yet create additional responsibilities for those who publish personal information of third-parties online without going so far as to completely rule in favor of Robins.

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