Litigation and SCOTUS: Cases for Your Company to Watch (UPDATE)

May 28, 2014

Security guards walk the steps of the Supreme Court before Justice Elena Kagan's investiture ceremony in WashingtonBack in March, I wrote a piece for the Corporate Counsel Connect Newsletter on the top cases before the Supreme Court this term affecting corporations.  Below is an update on the status of those cases (you can find the original article here).

Lawson v. FMR LLC

Lawson was decided by the Court on March 4, 2014.  As discussed in the update to the section in the original article, the Court majority accepted the view advanced by the whistleblower plaintiffs – specifically, that the Sarbanes-Oxley Act’s whistleblower protection provisions shielded not only employees of public companies, but also employees of contractors of public companies.

The majority opinion was written by Justice Ginsburg and was joined by Justices Breyer and Kagan and Chief Justice Roberts.  The majority found that the more expansive interpretation espoused by the whistleblower plaintiffs was the one most in line with the statutory text, as well as that most closely following Congress’s intent in passing the Act (that is, “to safeguard investors in public companies and restore trust in the financial markets following the collapse of the Enron Corporation”).

Justice Scalia wrote a separate concurrence that was joined by Justice Thomas which agreed in the judgment of the majority, but wrote specifically separately to avoid sanctioning the majority’s “occasional excursions beyond the terra firma or text and context, into the swamps of legislative history.”

Justice Sotomayor wrote a dissent that was joined by Justices Kennedy and Alito.  The dissent argued that the statute is far more ambiguous than the majority admits, and further, that the majority’s interpretation of it will create “absurd results.”  The dissent gives the following example of such:

The majority’s interpretation “authorizes a babysitter to bring a federal case against his employer—a parent who happens to work at the local Walmart (a public company)—if the parent stops employing the babysitter after he expresses concern that the parent’s teenage son may have participated in an Internet purchase fraud.”

The majority addressed the dissent’s hypothetical as “unlikely” and that any such “overbreadth problems may be resolved by various limiting principles.”

Whether this is true and the full consequences of the majority decision remain to be seen, but it’s nevertheless clear that the decision is a landmark one in the realm of whistleblower law.

POM Wonderful LLC v. The Coca Cola Company

The Supreme Court has not yet ruled in POM Wonderful, but oral arguments were held on April 21, and comments from the justices during arguments seemed to strongly indicate that the Court has already made up its mind: unanimous reversal.

There didn’t seem to be a single comment in support of Coke’s position from the justices, who instead bombarded Coke’s attorney with challenges to its argument.  And perhaps the biggest indication of how badly things were faring for Coke was Justice Kennedy’s references to Coke’s labeling practices as “cheating” the consumers.

Although none of the other justices used this explicitly strong of language, they all seemed to agreed that Coke’s labeling is deceptive, and that the FDA’s labeling regulations do not shield Coke from liability.

One of Justice Kennedy’s questions sums up how much of a long shot the case is for Coke:

[Y]ou want us to write an opinion that said that Congress enacted a statutory scheme because it intended that no matter how misleading or how deceptive a label it is, if it passes the FDA,…there can be no liability. That’s what you want us to say?

Although we won’t know how the Court will rule for sure until it announces its decision, things aren’t looking great for Coke.

The exact wording of the opinion will largely affect the breadth and depth of its impact, but it’s very likely that a ruling against Coke will breathe new life into consumer labeling lawsuits.

U.S. v. Quality Stores

The Court ruled in Quality Stores on March 25 8-0 (with Justice Kagan taking no part in the case).  And just as oral arguments seemed to indicate, the Court ruled in favor of the government in finding that “supplemental unemployment benefits” (or “SUB payments”) qualify as “wages” for purposes of the Federal Insurance Contributions Act (FICA).

What this means for many companies is brand new tax liability that they had previously escaped – some to the tune of several million dollars.

Whether a given company will have a higher tax bill because of the ruling and just how much higher that bill has become both depend on a variety of factors relating to the individual company.  Regardless, however, the impact that Quality Stores will have on corporate taxation are undeniable.