Author: Ronald Mann

The argument yesterday in Emulex Corp. v. Varjabedian presented the justices with an odd interpretive problem about revisions to the securities laws made in the 1960s to govern tender offers. At that time, federal courts commonly read statutes as “implying” private rights of action, permitting private parties to file suit to enforce the securities laws whenever it seemed a useful way to ensure compliance. So when Congress wrote the provision proscribing misleading information in disclosures about tender offers (Section 14(e) of the Securities Exchange Act) by using language that had received that treatment already, it would have been reasonable for Congress at that time to expect that courts would find a private right of action under that statute as well. That was then, but this case comes up now. Federal courts now are most reluctant to infer private rights of action, viewing the practice as an intrusion on the legislature’s paramount responsibility and authority to define the jurisdiction of the federal courts. Put simply, then, the question for the justices is whether they should read Section 14(e) to mean what Congress probably should have expected it to mean when Congress wrote it or read it under the court’s modern system of statutory interpretation.

Emulex Corp v. Varjabedian, which will be argued on April 15, is a case with a simple story and a complicated story. The justices’ approach to this case is likely to turn on which story they prefer. The case involves Section 14(e) of the Securities Exchange Act, which among other things proscribes “mak[ing] any untrue statement of a material fact … in connection with any tender offer.” Respondent Gary Varjabedian represents a class of investors who claim that petitioner Emulex failed to provide adequate information to allow investors to evaluate the price in a tender offer for the stock of Emulex. The lower courts decided that Emulex could be held liable if the investors could prove that Emulex negligently failed to provide material information in its disclosures to investors. The case raises two questions: whether the investors can sue Emulex for damages under Section 14(e) and, if they can, whether they are required to prove more than that the company acted negligently.

This morning’s decision in Lorenzo v. Securities and Exchange Commission brings no surprises, as the court's holding follows the views apparent at the oral argument (discussed in my earlier post). Specifically, Justice Stephen Breyer’s opinion for six justices holds that defendant Francis Lorenzo is liable for participating in an unlawful scheme to defraud by distributing false statements written by his supervisor, even though the supervisor’s role protected Lorenzo from any liability for “making” the statements himself. [caption id="attachment_284259" align="aligncenter" width="540"] Justice Breyer with opinion in Lorenzo v. SEC (Art Lien)[/caption]

This morning the justices issued a per curiam opinion vacating the decision of the lower court in Frank v. Gaos. They had granted review in that case to consider the propriety of so-called “cy pres” settlements – settlements of class actions that distribute all or a part of the monetary relief to public-interest or charitable recipients instead of the named plaintiffs. In this case, for example, the lower courts awarded $8.5 million in monetary relief in a suit brought by plaintiffs alleging that Google’s privacy practices violated the Stored Communications Act. Because the amount of the settlement per plaintiff was quite small (less than a dime), the district court concluded that it was impracticable to distribute funds to the plaintiffs and instead ordered that the funds be paid to several initiatives studying internet privacy and information sharing. Many have challenged cy pres settlements as an inappropriate exercise of the judicial power, reasoning that an award that does not provide redress to the injured parties is not proper, and the justices granted review here to assess that practice.

This morning’s 6-3 opinion in Air and Liquid Systems Corp. v. DeVries affirms the decision of the lower court holding that the manufacturers of asbestos-dependent equipment used on Navy ships can be held liable to sailors who became ill because of their contact with the asbestos. Because the case involves liability for conduct at sea, the dispute arises under the “maritime law,” a type of federal common law for which the U.S. Supreme Court is the final authority. In the same way that the New York Court of Appeals is the final authority for the law of negligence in accidents that occur in New York, the U.S. Supreme Court sets the rules for tort liability when the injury occurs at sea. [caption id="attachment_283901" align="aligncenter" width="540"] Justice Kavanaugh with opinion in Air & Liquid Systems Corp. v. DeVries (Art Lien)[/caption]

The desultory argument in Rimini Street v. Oracle USA (discussed in my earlier post) suggested a consensus hostile to the broad fee award approved by the lower court, so nothing in today’s unanimous opinion reversing the court of appeals comes as a surprise. The case involves the problem of litigation expenses in copyright litigation. Specifically, it calls for interpretation of Section 505 of the Copyright Act, which defines the expenses that a prevailing party in copyright litigation can obtain as including “full costs.” All agree that “costs” in Section 505 include the six narrow categories of “taxable costs” defined in the general provisions of the Judicial Code (28 U.S.C. § 1920). The question is whether an award of “full” costs can include costs beyond the costs that are “taxable” under Section 1920. In this case, for example, when respondent Oracle prevailed in its claim that petitioner Rimini Street had infringed Oracle’s copyright, the lower courts awarded Oracle $36 million in copyright-related damages, $29 million in attorney’s fees, $3.4 million in taxable costs and $13 million in additional nontaxable costs (covering expert witnesses, e-discovery, jury consulting and the like). The court held yesterday that the $13 million award of nontaxable costs was a mistake.

The second and last argument of the week came in the Supreme Court’s most important bankruptcy case of the year, Mission Product Holdings Inc. v. Tempnology, LLC. The case presents a problem that has confused lower courts for more than 30 years: What happens when a debtor exercises its statutory right to reject a contract in bankruptcy? It is plain from the language of the statute that the debtor’s rejection should be treated as a “breach” of the contract, and that the counterparty can sue the bankrupt for damages. The question, though, is whether the rejection’s “breach” operates to rescind the entire contract. In this case, for example, the contract in question is a trademark license, and the debtor not only wants to terminate its own obligations under the contract; it also wants to retract the licensee’s right to use the debtor’s trademark. You might wonder, if this problem has plagued lower courts for 30 years, why Congress has not responded. In fact, it has. Specifically, shortly after the 1985 decision of the U.S. Court of Appeals for the 4th Circuit in Lubrizol Enterprises v. Richmond Metal Fin (holding that a debtor can terminate rights under a patent license), Congress promptly amended the Bankruptcy Code to provide that the licensee of a patent can retain its rights even if the licensor rejects the license in bankruptcy. The problem is that Congress’ amendment applies to patent and copyright licenses, but not to trademark licenses. Hence this case.

The justices have a light calendar this week, with only two arguments. If the first argument of the week (Return Mail Inc. v. U.S. Postal Service) is any guide, they’ve spent their extra time focusing carefully on the relatively thin session. At first glance, Return Mail is a simple statutory case, involving another in a long line of drafting flaws in the AIA (Congress’ 2011 patent-reform bill, the Leahy-Smith America Invents Act). But the argument presented a highly engaged bench, with all of the justices (except Justice Clarence Thomas) asking pointed questions, several of which seemed to raise the stakes higher than we might expect for a simple patent case. [caption id="attachment_279541" align="aligncenter" width="540"] Justice Ginsburg asks first question of petitioner's lawyer, Beth S. Brinkmann (Art Lien)[/caption]

The second of the two cases set for oral argument next week is a bankruptcy matter, Mission Product Holdings Inc. v. Tempnology, LLC. Although the case presents a variety of twists and complications, the central question is so simple that it is surprising it has not been settled for decades: When a debtor rejects a contract in bankruptcy, does that simply mean that the debtor can stop performing (and become liable for breaching the contract) or does it also mean that the contract is rescinded (retracting any rights it might have granted the other party)? The question before the justices comes from Section 365 of the Bankruptcy Code, Subsection(a) of which gives any bankrupt firm the power to “assume or reject any executory contract of the debtor.” Subsection 365(g) offers some guidance as to the effect of rejection, explaining that it “constitutes a breach” of the affected contract, which ordinarily would leave the debtor liable for damages for breach of contract. The question, though, is whether rejection goes further and also rescinds the entire arrangement.

[caption id="attachment_279398" align="alignright" width="175"] (Kevin Payravi, Wikimedia Commons)[/caption] The justices have a light calendar for the first week of the February session, with only two cases set for argument. The first of the pair is Return Mail Inc. v. U.S. Postal Service, the lone Tuesday argument. Return Mail is a simple statutory case asking the justices to resolve another of the seemingly endless flow of drafting problems arising out of Congress’ 2011 patent-reform bill, the Leahy-Smith America Invents Act (usually called the AIA). The question in this case is whether the United States (specifically, the U.S. Postal Service) is a “person” for purposes of a series of provisions in the AIA stating that “a person who is not the owner of a patent” may petition for post-grant review of an issued patent. The Patent and Trademark Office issued a patent to petitioner Return Mail for an invention involving the use of bar codes in facilitating the processing of undeliverable mail. After Return Mail sued the Postal Service, claiming that Postal Service’s practices infringed the Return Mail patent, the Postal Service filed a petition under the AIA’s procedures for review of business-method patents, asking the PTO to invalidate the patent. In due course, the PTO held the invention unpatentable and invalidated the patent. After the U.S. Court of Appeals for the Federal Circuit affirmed that decision, the Supreme Court agreed to consider whether the PTO properly permitted the government to initiate that review process instead of litigating the validity of the patent in the context of Return Mail’s enforcement suit (which would have proceeded in the U.S. Court of Federal Claims, the prescribed venue for patent infringement suits against the federal government).