Risk & Compliance

Scalia’s Death Harms Companies’ Interests in Supreme Court

A number of class-action cases that probably would have been decided in companies' favor are now up in the air.
David McCannFebruary 23, 2016
Scalia’s Death Harms Companies’ Interests in Supreme Court

The death of Supreme Court Justice Antonin Scalia triggered more than the brouhaha over who should appoint his successor, a story that’s been vying with the presidential primaries for headlines since his Feb. 13 passing.

ScaliaThere are also implications for a number of cases currently before the court. Among key ones whose fates are now cloudier than before are several related to class actions in which businesses have clear rooting interests.

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For insights on these cases CFO went to Evan Young, a partner and chairman of the litigation department in the Austin, Texas office of international law firm Baker Botts.

Why Young? A 2004 graduate of Yale Law School, he clerked for Scalia for a year in 2005 and 2006; he has argued cases before the Supreme Court; and last summer he was named a member of the Supreme Court Advisory Committee, which helps the court review and develop administrative and procedural rules for Texas courts.

Among a number of class-action cases that could now wind up deadlocked 4-4 while the Supreme Court awaits its new justice, the one with perhaps the greatest potential impact on companies is Tyson Foods, Inc. v. Bouaphakeo. In the case, workers in an Iowa slaughterhouse sued Tyson for allegedly not keeping complete records of overtime hours worked and thereby shorting them on overtime pay.

The case is a test of whether the court can approve a Rule 23 class action, in which damage claims are determined by statistical modeling rather than each class member’s individual damages. Statistical modeling makes it easier and less expensive for plaintiffs to bring class actions against companies and easier to win a judgment, according to Young.

“The problem is that it allows for a vast group of people to all be compensated based on whatever level of sampling the court approves,” says Young, who represents companies and should be expected to take their side. “It runs various risks of manipulation or inaccuracy. Damages are a highly individualized thing.”

Many court observers had believed that the case would be decided 5-4 in favor of banning Rule 23 case approvals. Without Scalia’s presumed vote with the majority, the vote could be 4-4, and a tie vote is tantamount to the court not making any ruling at all.

Instead, Young notes, it appears that the Supreme Court may opt to decide the case based on the narrower issue of what proof is needed to support claims related to overtime pay. But that doesn’t mean the court won’t eventually decide the bigger issue relating to Rule 23 class actions.

“It’s a hugely laborious process to take a case from a trial court to the court of appeals [and then the Supreme Court], for both plaintiffs’ lawyers and the courts,” says Young. “It’s not really in anyone’s interest to resolve cases 4-4, because it’s usually only another year or two until the next case comes along that squarely presents the issue and there’s no dodge available.”

The Supreme Court also can decide to hold onto deadlocked cases until the Senate confirms a ninth justice. “I think it would be respectful of the system, the litigants, and the court itself to consider exercising its discretion to save a case for a new justice rather than let it go 4-4 and be done with it,” Young says.

Another class action with significant potential ramifications for companies is Spokeo, Inc. v. Robins. The case involves the Fair Credit Reporting Act (FCRA), which is frequently the subject of class actions.

Spokeo is a people-search website that aggregates data from online and offline sources; companies often use it to evaluate job candidates or people involved in potential transactions. In the case, Thomas Robins, a Virginia man, claims Spokeo published inaccurate information about him.

The question before the court is whether Robins, and others like him, are entitled to bring a lawsuit claiming damages, even if they suffered no actual harm, when a company does not adhere to the letter of a law (in this case, the FCRA).

“The Constitution says, as the Supreme Court has understood it, that for a private person to bring a lawsuit he or she has to have an actual injury,” says Young.

The Ninth Circuit Court of Appeals had ruled that it’s not harmful for a person to be portrayed as more educated than he is, or as married when he’s not, or as making more money than he actually does, Young notes.

Before his death, Scalia had suggested during oral arguments that based on Robins’ interpretation, the failure by a credit reporting agency to include a 1-800 number on its application form, for example, would allow anyone to sue, even if the omission didn’t affect them at all.

Comments by justices in oral arguments suggested they had a number of divergent opinions on the question, but Young says the case very likely would have been decided 5-4 against the plaintiffs. And, he notes, the case is relevant to many companies, not just credit reporting agencies.

Such cases have the potential to cost companies a lot of money, according to Young. For example, he says, referring to the Spokeo case, FCRA violations can result in a company being charged up to $1,000 per credit application. “At $1,000 a pop, it could add up to something that could bankrupt a lot of businesses.”

The Supreme Court could base its ruling not on the substance of the case but on whether it is proper, under Article III of the Constitution, for the court to hear it at all. “In cases that involve a question of whether courts should be able to hear a certain kind of claim, the justices who are conservative have more often been hesitant than the liberal justices,” Young says.

A third case Young points to involves a group of Xbox 360 users who sued Microsoft, claiming that the game’s console had a faulty optical disk drive. The issue the court will decide is whether plaintiffs can challenge a lower court’s decision to deny their request for certification as a class.

Meanwhile, Young notes that while there are only eight Supreme Court justices, the court might agree to hear fewer cases that could prove helpful to companies.

That’s because four justices’ votes are required for the court to take a case. So on occasions when, for example, Justice Anthony Kennedy, who’s frequently a swing voter in Supreme Court decisions, sides with the liberal justices, there will not be enough conservatives on the court to get some cases heard.

Also, Young points out that depending on who replaces Scalia, one area of law that’s of interest to companies may be interpreted less conservatively, despite the departure of the famously conservative jurist.

Scalia has consistently held that the Supreme Court has no authority to review punitive damages awarded by lower courts. In so doing, he and Kennedy both typically have sided with the high court’s more liberal members. “There aren’t any Supreme Court cases at all in this area of the law that matters greatly to businesses,” Young says. “In this area, Scalia brought the court to the left and was the best friend of plaintiffs’ lawyers.”

Significant cases in which plaintiffs received “bonanza” awards that the Supreme Court declined to review have included BMW of North America, Inc. v. Gore and State Farm Mutual Automobile Insurance Co. v. Campbell, Young notes.