Scalia’s absence a blow to companies?

What now? That’s the question weighing heavily on the minds of many companies left wondering what the death of U.S. Supreme Court Justice Antonin Scalia means for business cases before the highest court in the land.

With only eight justices, the high court is more likely to deadlock 4-4 on closely divided business-related cases, and that alone is reason enough to make any company with a case before the Supreme Court reevaluate its situation. “The mere uncertainty created by Justice Scalia’s absence may cause businesses to think about their litigation strategy and consider whether to take a different approach,” says Agnès Dunogué, a partner at law firm Shearman & Sterling.

Class-action litigation, in particular, is one area where the absence of Scalia, who authored several significant class-action decisions in favor of corporate defendants, could make it more difficult for companies to get the five-member majority votes they need to either overturn previous judgments or restrict class actions altogether.

In fact, at least one company publically alluded to Scalia’s death as the reason why it decided to bite the bullet and settle its class-action lawsuit, rather than gamble on the final outcome. Dow Chemical Co. has agreed to enter into an $835 million settlement with a plaintiff class to resolve a price-fixing lawsuit over allegations that it conspired with other chemical companies to artificially inflate polyurethane prices.

Dow filed an appeal with the Supreme Court to challenge the class action, but the case was put on hold pending the resolution of another significant class-action case, Tyson Foods v. Bouaphakeo. “Growing political uncertainties due to recent events within the Supreme Court and increased likelihood for unfavorable outcomes for business involved in class-action suits have changed Dow’s risk assessment of the situation,” Dow said in a statement.

While it has reached a settlement, Dow said it continues to “strongly believe” that the $1 billion class-action judgment approved by the U.S. District Court of Kansas was “fundamentally flawed as a matter of class-action law,” specifically citing the Supreme Court’s 2011 decision in Walmart v. Dukes and 2013 decision in Comcast v. Behrand. Both the Walmart and Comcast decisions, in which Scalia delivered the opinions for the court, effectively limited federal class actions, which was the favorable outcome that Dow was hoping to achieve.

“The mere uncertainty created by Justice Scalia’s absence may cause businesses to think about their litigation strategy and consider whether to take a different approach.”
Agnès Dunogué, Partner, Shearman & Sterling

As Dow argued in its petition to the court, “This case presents important and recurring questions of class-action procedure that arise from the lower courts’ widespread use of ‘shortcuts’ that permit class certification and class-wide adjudication of complex antitrust damages actions by stripping defendants of the defenses they have against individual claims.”

Dow’s sudden about-face to enter into a settlement is an especially telling example of what broader concerns are weighing heavily on the minds of other corporate defendants. “I’ve certainly talked to clients about seeking Supreme Court review of certain cases; that calculus is substantially affected by Scalia’s absence not only in terms of his ideological views, but also what it’s going to mean for the ultimate outcome of the case,” says one appellate lawyer who’s represented numerous companies before the Supreme Court and asked not to be identified.

With Scalia on the bench, “you could at least confidently assume on any business issue that you would have a sympathetic ear of five justices,” he says. Given that companies don’t presently have that solid pro-business majority, “that will have a lot to do with which cases people take to the court in the first instance and how aggressively they may fight to keep cases out of the court.”

In addition to class-action litigation, arbitration is another issue where the high court has been closely divided. One significant case, in which Scalia delivered the opinion for the court, was AT&T Mobility v. Concepcion, a case that granted companies broad authority to settle disputes through arbitration, rather than costly class-action lawsuits.

Scalia’s significant business cases

Below are examples of significant opinions delivered by Justice Antonin Scalia in several closely divided business cases.
Morrison v. National Australia Bank. This case sharply curbed the extraterritorial scope of Section 10(b) of the Exchange Act, barring so-called “F-cubed” securities fraud actions—that is, lawsuits filed in U.S. courts by foreign investors against foreign companies that trade on foreign exchanges. In an opinion written by Scalia, five of the justices essentially held that Section 10(b) of the Exchange Act was not intended to provide a claim for relief for purchases or sales of securities outside of the United States.
Wal-Mart Stores v. Dukes. This case resulted from allegations that Walmart’s policies and practices led to countless discriminatory decisions over pay and promotions against women. The main question before the court was not whether Walmart, in fact, discriminated against the women, but whether the case could proceed as a plaintiff class. In the court’s 5-4 ruling to decertify the class, Justice Scalia wrote for the majority that the plaintiffs needed to “affirmatively demonstrate” compliance with Rule 23 of the Federal Rules of Civil Procedure—which requires a plaintiff to show that common questions of law or fact prevail over individualized questions—by offering “significant proof” of a common policy of discrimination rather than making only an easier-to-prove “showing.”
“In a company of Walmart’s size and geographical scope, it is quite unbelievable that all managers would exercise their discretion in a common way without some common direction,” Scalia wrote. “The second manner of bridging the gap requires ‘significant proof’ that Walmart ‘operated under a general policy of discrimination.’ That is entirely absent here.”
Comcast v. Behrend. In this case, the court in a 5-4 decision reaffirmed that district courts must conduct a “rigorous analysis” of whether a putative class satisfied Rule 23(b)(3).  “Under the proper standard for evaluating certification, respondents’ model falls far short of establishing that damages can be measured class-wide,” Scalia wrote. “Without presenting another methodology, respondents cannot show Rule 23(b)(3) predominance: Questions of individual damage calculations will inevitably overwhelm questions common to the class.”
AT&T Mobility v. Concepcion. This case effectively granted companies broad authority to settle disputes through arbitration, rather than costly class-action lawsuits. In this case, the court in a 5-4 decision ruled that the Federal Arbitration Act preempts state laws that invalidate class action waivers in consumer arbitration agreements. “Requiring the availability of class-wide arbitration interferes with fundamental attributes of arbitration,” Justice Scalia wrote for the majority. He was joined by Chief Justice John Roberts and Justices Anthony Kennedy, Clarence Thomas, and Samuel Alito.
Source: Supreme Court.

“Arbitration is a very important tool for companies to resolve disputes economically and keep disputes out of court that should not be in court,” says Joseph Palmore, co-chair of the Appellate and Supreme Court Practice Group at law firm Morrison and Foerster. “So that’s an important issue, and it’s one that corporate defendants in consumer cases will be paying attention to.”

Splitting hairs

Aside from class-action litigation and arbitration claims, most other business issues likely won’t be affected by Scalia’s absence in any significant way, some appellate lawyers say. “As influential as Justice Scalia’s views have been, most cases are not decided by a 5-4 vote, especially business cases,” says Jeffrey Bucholtz, a partner in the national appellate practice at law firm King & Spalding. “It’s hard to say that the loss of a particular justice, or the addition of any new justice, would necessarily tip the balance.”

In the same aspect, however, Palmore says there is also the sense that the court is being “extra cautious” during this period of uncertainty in granting closely divided cases. The first real indication of that came late last month, when the Supreme Court denied a petition to review Direct Digital v. Mullins, a closely watched case by the business community.

For a long time, courts have held that a putative class must be clearly defined and based on objective criteria as prerequisites for the class to be certified. In legal terms, courts refer to this threshold as the “ascertainability” requirement. In Direct Digital, the Seventh Circuit expressly split from decisions in the Third and Eleventh Circuits and held that a trial court does not have to identify class members in a “reliable and administratively feasible” way in order to ascertain a class.

Typically, a split among the circuits is reason enough for the Supreme Court to grant a petition to hear a case, but in Direct Digital, you have not only a circuit split, but also numerous amicus briefs from the business community, urging the court to grant cert, making it a prime candidate for the court, says Burt Rublin, head of the appellate practice group at law firm Ballard Spahr. Despite these circumstances, the Supreme Court still denied to review the case.

The Direct Digital case signals that even the conservative justices realize that, so long as the court has only eight justices, there is no point in granting cert if all the court is going to do is deadlock 4-4, “the consequence of which is to leave the lower-court opinion standing,” says Rublin. For in-house counsel, that effectively means if you’re thinking about asking the court to grant a writ of certiorari, “you have to realize that your chances, if you’re on the business end of a case, aren’t as great as they were a month ago,” he says.

This month, while President Barack Obama nominated Merrick Garland as the new Supreme Court justice, his appointment is far from a sure bet. What companies can count on is several more long months of uncertainty as we continue to await the outcome of many more significant business cases pending before the court.