Tag: amicus briefs

Getting Class Action Rules Right Makes Markets More Efficient

Getting the rules governing class actions right means balancing the need to keep the courthouse door open for legal claims not lucrative enough to pursue individually with the need to prevent wholesale extortion by opportunistic would-be plaintiffs (and their lawyers) who know that the settlement values of class actions are generally much larger than those of individual lawsuits.

In its recent (2011) decision in Wal-Mart v. Dukes, the Supreme Court reiterated that when considering whether to certify a lawsuit as a class action (which aggregates presumptive claims from a national “class” of plaintiffs), a trial court must conduct a “rigorous analysis” to determine that the putative plaintiffs satisfy the key requirements of Federal Rule of Civil Procedure 23: (1) the class is so large that each potential plaintiff can’t join the suit individually (“numerosity”); (2) questions of law or fact are common to the class (“commonality”); and (3) the claims/defenses of the plaintiff representatives are typical of the class as a whole (“typicality”). Despite Dukes, many courts have fallen back on a misinterpretation of an earlier Supreme Court decision, Eisen v. Carlisle & Jacquelin, to hold that a court can’t consider at the class-certification stage any issue that will overlap with the merits of the case.

In Comcast v. Behrend, the Philadelphia-based U.S. Court of Appeals for the Third Circuit affirmed the district court’s certification of a class of nearly two million past and present Comcast cable customers in an antitrust action against the company. In certifying the class, the district court refused to evaluate the admissibility of testimony presented by plaintiffs’ expert witness regarding the ability to calculate class-wide damages, considering such an inquiry to go to the merits of the case. The court thus failed to conduct “rigorous analysis” with respect to that issue, and so the Supreme Court decided to review whether a class can be certified without first determining, as part of the Dukes analysis, whether a plaintiff’s methodology for calculating damages is admissible.

Cato has filed an amicus brief urging the Court to clarify that what it meant in Dukes was that a full inquiry into the reliability and admissibility of expert testimony (a so-called Daubert inquiry) is required at the class-certification stage. A lower standard would obviously prejudice defendants because class certification “magnifies and strengthens the number of unmeritorious claims” and creates “insurmountable pressure on defendants to settle.” But it would also prejudice absent class members because certification based on inadmissible evidence may distort their perception of the likelihood of success and encourage the members to stay in the class. Since all class members who don’t opt out of the class are ultimately bound by a class action judgment, there’s a large potential for harm to these potentially valid claims as well.

The only way to sufficiently protect the interests of defendants and absent class members, as well as to stay faithful to the basic commonality requirement of Rule 23 — which balances the overall social interests described above — is for the Supreme Court to reverse the Third Circuit and clarify that the Daubert standard applies at the class-certification stage, not just at trial.

The Supreme Court will hear the case of Comcast v. Behrend on November 5.

Section 5 of the Voting Rights Act Has Got to Go

This blogpost (and the brief described herein) was co-authored by Cato legal associate Matt Gilliam.

Today Cato filed an amicus brief supporting the petitions for Supreme Court review in two cases involving similar challenges to the Voting Rights Act of 1965. Specifically, the cases challenge the requirement under Section 5 that certain jurisdictions (as determined by a 35-year-old formula in Section 4(b)) receive approval (“preclearance”) from the Department of Justice or a special federal court in Washington before implementing any change to election regulations, no matter how modest.

In Nix v. Holder, the Department of Justice rejected the decision by voters in Kinston, North Carolina, to make local elections nonpartisan – as is the case in most of the state – on the basis that “the elimination of party affiliation on the ballot will likely reduce the ability of blacks to elect candidates of choice.” In Shelby County v. Holder, an Alabama county sued to attain preemptive resolution of the “serious constitutional questions” noted by the Supreme Court in the last significant VRA challenge in 2009. Both lawsuits hinge on the modern validity of Section 5, and both were turned back by the U.S. Court of Appeals for the D.C. Circuit (Shelby County over a heated dissent by Judge Stephen Williams). Both now seek Supreme Court review, and Cato’s amicus brief urges the Court to hear either case, or both.

The Fifteenth Amendment gives Congress the power to craft “appropriate” enforcement legislation to secure the rights of all citizens to vote, regardless of race or color. Congress’s initial attempts to enforce those rights, however, were frustrated by tactics designed to evade federal authority. Congress thus enacted Section 5, meant to apply to jurisdictions with a history of disenfranchising black voters. The Supreme Court, in upholding Section 5 against constitutional challenge in the 1960s, recognized that the measure is extraordinary, exacting perverse and substantial costs on federalism and equal protection principles – but as long as Congress’s electoral concerns were substantiated, Section 5 remained constitutionally justified. Enforcement of the VRA went on to successfully defeat the systemic discrimination that had once justified Section 5.

In 2006, however, Congress reauthorized the VRA for another 25 years, without explaining why certain jurisdictions had to be subject to such an intrusive process on the basis of an obsolete formula, particularly when all of the evidence showed that the goal of minority representation and access to voting in the South was achieved (and indeed that black registration and voting rates were higher in covered jurisdictions than elsewhere in the country). Indeed, the 2006 revisions made matters worse, authorizing the federal government to reject any electoral changes in a covered jurisdiction, no matter how small or insignificant, whenever they are believed to evince “any discriminatory purpose” or “diminish[] the ability of minority citizens … to elect their preferred candidate of choice.” Beyond the harm to federalism, the modern Section 5 thus creates a serious equal protection dilemma, mandating that covered jurisdictions factor race into their election laws even as the Fourteenth and Fifteenth Amendment’s non-discrimination principles forbid it.

In addition to these problems, Section 5 cannot coexist with Section 2 (a provision aimed at discrete instances of discrimination in voting). The Supreme Court should excise Section 5, leaving Section 2 private rights of action as the proper remedy for voter disenfranchisement. Because Section 5’s burdens are no longer justified by “current needs,” they fail to satisfy the Court’s requirements for “appropriate” enforcement legislation. In other words, Section 5’s early success quickly obviated its legitimacy. Accepting that point is not an admission of defeat, but a declaration that the VRA has achieved its promise.

The Court will decide this fall whether to hear Nix v. Holder and/or Shelby County v. Holder.

The Fourth Amendment Doesn’t Allow Roving Licenses to Detain People Without Probable Cause

This blogpost was co-authored by Cato legal associate David Scott.

Searches and seizures have long been held to be unreasonable under the Fourth Amendment unless supported by probable cause. There are only a few narrow exceptions to that probable cause requirement.

The Supreme Court found one such exception in the 1981 case of Michigan v. Summers, which gave police a limited authority to detain the occupants of premises that were lawfully being searched. The Court justified this limited detention by invoking the need for officers to have “unquestioned command” of the premises and prevent flight should incriminating evidence be found, thus “minimizing the risk of harm to the officers” and facilitating “the orderly completion of the search.”

In 2005, police officers were preparing to execute a search warrant on a home in Wyandanch, New York, when they witnessed Chunon Bailey—who was unaware of the search warrant or its pending execution—exit the home and begin to drive away. Officers followed and subsequently stopped Bailey, detaining him about a mile from the premises to be searched. The government contends that Bailey’s detention was proper pursuant to Summers.

The district court agreed and the U.S. Court of Appeals for the Second Circuit affirmed, holding that the interests expounded in Summers justify the detention of a prior occupant of the premises to be searched so long as the detention is made “as soon as practicable” after identifying “an individual in the process of leaving the premises.” The Supreme Court agreed to review the case and Cato has now joined the ACLU and the New York Civil Liberties Union in filing an amicus brief urging the Court to reverse the Second Circuit.

Our argument is three-fold. First, the Second Circuit’s extension of Summers lacks any limiting principles to the power to detain without probable cause. Without an outer limit, the Summers exception would be applicable to any number of situations in which detention without probable cause is unreasonable. A warrant to search a particular place would be transformed into a roving license to detain any person thought to be associated with that place.

Second, the Second Circuit’s attempt to establish a limiting principle by requiring the detention to occur “as soon as practicable” is insufficient because it has no principled basis and is inconsistent with the underlying values of the Fourth Amendment. Furthermore, the “as soon as practicable” standard provides no clear guidance to officers as to when a detention is permissible.

Finally, the extension of Summers here is unnecessary to ensure that officers maintain “unquestioned command” of the premises during a search: The detention of an individual away from the premises to be searched has nothing to do with police “command” of the premises, but is instead merely a means of holding someone pending the speculative emergence of probable cause.

The Supreme Court will hear argument in Bailey v. United States on October 30.

IRS Can’t Manipulate Tax Code to Generate More Revenue for Itself

This blogpost was co-authored by Cato legal associate Matt Gilliam.

An American energy company called PPL bought one of many state-owned British utilities privatized in the 1980s. In 1997, PPL thus became subject to the UK’s new “windfall tax,” which was based in part on “profit-making value”—the utility’s average annual profit multiplied by an imputed price-to-earnings ratio.

Various American energy companies subject to this tax filed claims with the IRS for a “foreign income tax” credit, which the IRS denied in 2007, asserting that the British tax was not a creditable one under the “foreign income tax” provision of the Internal Revenue Code (Section 901). The IRS claimed that the windfall tax did not satisfy the “predominant character” standard (was not predominantly an income tax) because the British statute used the term “profit-making value” instead of “net income” and “gross receipts,” and the tax rate was defined “as a percentage of an imputed value … rather than directly as a percentage of net income.”

After the federal tax court held that PPL was entitled to the foreign tax credit, the U.S. Court of Appeals for the Third Circuit reversed. Explaining that a tax exemption is a privilege extended by legislative grace, the appellate court held the tax not to be creditable because it reached beyond realized profit and did not tax actual gross revenue. In a different case last year, however, the U.S. Court of Appeals for the Fifth Circuit held that the British windfall tax was indeed creditable because (1) it reached realized income and (2) gross revenue was an inherent part of the calculation. The Fifth Circuit explained that the form and label of the foreign tax are not determinative and that the predominant character standard requires the IRS to analyze the history and intent of a tax to assess whether it tries to reach some net gain.

Cato now joins Southeastern Legal Foundation and Goldwater Institute on an amicus brief in urging the Supreme Court to take PPL’s case because it implicates fundamental issues of property rights, free markets, and the arbitrary exercise of government power—and the circuit split creates uncertainty for American businesses overseas. We argue that taxpayers have the right to be free from double taxation and that here the IRS and Third Circuit improperly disregarded the substance of the windfall tax and applied an overly rigid construction of its terms.

Ultimately, a foreign tax’s form or label cannot mask its substantive character and intent for legal purposes. American businesses operating overseas should be able to rely on a stable, substantive application of U.S. tax law instead of arbitrary interpretations and constructions manipulated to generate payments to the IRS.

The Supreme Court will decide this fall whether to hear PPL Corp. v. Commissioner of Internal Revenue.

What Did the Founders Think About International Law?

Last term, the Supreme Court postponed its decision in Kiobel v. Royal Dutch Petroleum, a case that initially asked whether the Alien Tort Statute—one of our oldest laws (1789), giving federal courts jurisdiction over lawsuits brought by aliens for actions “in violation of the law of nations”—applies to non-natural persons (that is, corporations). Instead, the Court called for further briefing and re-argument on a more basic question: Does the ATS allow U.S. courts to even hear lawsuits for violations of international law on foreign soil?

Cato’s previous brief in this case argued that the ATS must be interpreted in a manner consistent with Congress’s original jurisdictional grant—that is, in accordance with international law as of 1789, which allowed only natural persons to be sued—because courts cannot expand their own jurisdiction.

But the inquiry need not end there, because the Founders understood “the law of nations” to provide a methodology for defining the extraterritorial scope of ATS jurisdiction as well, as we explain in our supplemental Kiobel brief. We argue that the Founders’ understanding of jurisdiction rested on the nexus between territory and sovereignty and that the law of nations as of 1789 recognized a territorial nexus between the state asserting jurisdiction and the claim asserted.

We further argue that the petitioners’—12 Nigerians who sued an oil company and its subsidiaries for various human rights violations committed by Nigerian soldiers in Nigeria—heavy reliance on an analogy to piracy to support their expansive view of extraterritorial jurisdiction is unconvincing because “piracy,” properly understood, occurs on the high seas, in a stateless zone, and involves crimes committed by stateless actors. That the law of nations permits jurisdiction under those unique circumstances does not mean that a U.S. court may assert jurisdiction over conduct occurring entirely within the territory of a foreign sovereign.

Moreover, we note that the Supreme Court has already ruled in Grupo Mexicano de Desarrollo, S.A. v. Alliance Bond Fund (1999) that courts should not resort to “evolving” standards of international law to define the ATS’s extraterritorial scope. Petitioners have no answer for why the Court should not follow Grupo Mexicano or the clear principles of international law as of 1789.

In any event, the supplemental briefs filed by the petitioners, supporting amici, and the United States (which previously supported the petitioners but now argues partially against them) demonstrate the need for a clear, principled methodology regarding all aspects of ATS claims. The law of nations, as understood by the Founders in 1789, provides just such methodological guidance.

The Supreme Court will hear re-argument in Kiobel v. Royal Dutch Petroleum on Oct. 1, the first day of the new term.

Government Can’t Censor Book Promotion

This blogpost was co-authored by Cato legal associate Kathleen Hunker.

There’s a fine line between protecting the public from fraud and censoring unorthodox opinions—a line across which the government often stumbles. That was the case in September 2007, when the Federal Trade Commission filed a contempt motion against Kevin Trudeau, author of the best-selling book The Weight Loss Cure “They” Don’t Want You to Know About.

The FTC alleged that Trudeau had misrepresented the contents of his book in several “infomercials” by describing it as “easy” and claiming that dieters, by the end of the regimen, could eat anything they wanted without gaining weight. Despite the fact that Trudeau merely quoted the book when making these statements, the district court upheld the FTC’s findings and smacked Trudeau with a staggering $37.6 million fine. The court also imposed a rare “prior restraint” on speech, demanding that Trudeau post a $2 million bond before running any future infomercials.

The district court imposed these sanctions even though the FTC never proved that Trudeau misled a single consumer or violated any part of the FTC Act. On appeal, the Seventh Circuit affirmed the district court’s decision and ruled that Trudeau’s book promotion constituted misleading commercial speech and was therefore not entitled to any constitutional protection. If left unchallenged, the Seventh Circuit’s ruling would have a dire chilling effect on authors trying to promote their work and could give government officials broad censorial power, in effect permitting the FTC to tax fine through the backdoor what it could never regulate directly (sound familiar?).

Cato has thus filed an amicus brief supporting Trudeau’s request that the Supreme Court take the case and establish a constitutional standard that allows the FTC to protect consumers from fraud while respecting the First Amendment. We argue that courts should apply strict scrutiny to any government actions that restrict or punish advertisements that merely quote and summarize parts of a book (which enjoys full constitutional protection), as Trudeau’s infomercials did.

We note that the Supreme Court has held that commercial speech inextricably intertwined with otherwise protected speech deserves a high degree of First Amendment protection. Moreover, it is well-established that falsity alone may not remove speech from the shelter of the First Amendment.

Free speech loses its vitality when confronted with overzealous regulation; strict scrutiny of would-be government censors would give authors the necessary “breathing space” to publicize their work without the threat of exorbitant fines.

The Supreme Court will decide this fall whether to take the case of Trudeau v. FTC.

‘Temporary’ Takings That Cause Permanent Damage Still Require Just Compensation

This blogpost was co-authored by Trevor Burrus.

The Arkansas Game and Fish Commission owns and operates 23,000 acres of land as a wildlife refuge and recreational preserve; the preserve’s trees are essential to its use for these purposes. Clearwater Dam, a federal flood control project, lies 115 miles upstream. Water is released from the dam in quantities governed by a pre-approved “management plan” that considers agricultural, recreational, and other effects downstream.

Between 1993 and 2000, the federal government released more water than authorized under the plan. AGFC repeatedly objected that these excess releases flooded the preserve during its growing season, which significantly damaged and eventually decimated tree populations. In 2001, the government acknowledged the havoc its flooding had wreaked on AGFC’s land and ceased plan deviations. By then, however, the preserve and its trees were severely damaged, so AGFC sued the government, claiming damages under the Fifth Amendment’s Takings Clause.

The district court awarded $5.8 million in lost timber and reforestation costs based on the substantiality of the government’s flooding and the foreseeability of the damage it caused. The U.S. Court of Appeals for the Federal Circuit reversed that decision, holding that flooding can never be a taking unless that flooding is permanent. It further held that, in determining whether the government’s flooding was permanent or temporary, courts must focus on the character of the policy behind the intrusion rather the effects of the intrusion itself. A taking cannot have occurred here because each deviation from the plan constituted a “temporary” policy, the court concluded, so AGFC had no constitutional remedy.

In December, Cato joined the Pacific Legal Foundation on an amicus brief urging the Supreme Court to take the case, which it did. Now Cato again joins the Pacific Legal Foundation, as well as the Atlantic Legal Foundation, on a new brief urging the Court to uphold the Fifth Amendment rights of property owners whose land is destroyed by the federal government.

We argue that the length of time of the government’s physical invasion of property should not be used to determine whether a taking occurred, but rather only for calculating how much damage the taking caused. We further argue that the Federal Circuit’s focus on the “intent” of the government action—whether the flooding resulted from a “permanent or temporary policy”—is likewise irrelevant to whether a taking occurred. Instead, the inquiry should be whether the government caused permanent damage and, if so, how much. The lower court erroneously created a rule—that so long as it might be “temporary,” no government flooding can be remedied under the Fifth Amendment—that runs afoul of a constitutional provision meant to compensate property owners for government intrusions on their land.

The Supreme Court will hear the case of Arkansas Game & Fish Commission v. United States in October or November.