Friday, April 5, 2013
Another Semtek in the Making? Delaware Supreme Court Holds Collateral Estoppel Bars Shareholder Derivative Suit
Allergan, the pharmaceutical company, agreed to pay $600 million in civil and criminal fines after a Department of Justice investigation into the company's allegedly improper marketing of BOTOX for off-label uses. Several Allergan shareholders then filed shareholder derivative suits, some in federal district court in California (which were consolidated) and one in Delaware Chancery Court. Allergan moved to dismiss both actions for failure to plead demand futility under Rule 23.1 (the Delaware rule is "substantially the same" as Federal Rule 23.1).
The federal court dismissed the California action with prejudice (the dismissal is currently on appeal). The Delaware Chancery Court held that the California judgment did not bar the Delaware action and denied Allergan's motion to dismiss.
On interlocutory appeal, the Delaware Supreme Court reversed. Pyott v. Louisiana Municipal Police Employees' Retirement System, No. 380, 2012 (Del. April 4, 2013). Citing Semtek, the court first held that the preclusive effect of the California judgment would be determined by California state law. The California federal court held, as a matter of Delaware law, that demand was not futile and dismissed the derivative complaint "on the merits of demand futility."
Applying California preclusion law, the Delaware Supreme Court held that the issue of "whether, under Rule 23.1, the failure to make demand on the Allergan board is excused because such a demand would have been futile" was precluded. The court held that "because the real plaintiff in a derivative suit is the corporation, 'differing groups of shareholders who can potentially stand in the corporation's stead are in privity for the purposes of issue preclusion.'"
In addition, the court addressed and rejected plaintiffs' argument that the California plaintiffs' representation was inadequate. The Delaware Chancery Court had applied an irrebutable presumption that derivative plaintiffs who file their complaints without seeking books and records, very shortly after the announcement of a "corporate trauma," are inadequate representatives. The Delaware Supreme Court rejected such an irrebutable presumption.
Alli Orr Larsen (William & Mary) has posted Factual Precedents to SSRN.
Lawyers and judges speak to each other in a language of precedents – decisions from cases that have come before. The most persuasive precedent to cite, of course, is an on-point decision of the U.S. Supreme Court. But Supreme Court opinions are changing. They contain more factual claims about the world than ever before and those claims are now rich with empirical data. This Supreme Court fact-finding is also highly accessible; fast digital research leads directly to factual language in old cases perfect for arguments in new ones. An unacknowledged consequence of all this is the rise of what I call “factual precedents:” the tendency of lower courts to cite Supreme Court cases as authorities on factual subjects – as evidence that the factual claims are indeed true. Rather than citing, for example, evidence from the record to establish that carpal tunnel syndrome regularly resolves without surgery, lower courts instead find language from a Supreme Court opinion to cite for that point.
This article carefully describes how lower courts are using Supreme Court facts today, and then argues that these factual precedents are unwise. The Supreme Court is not a fact-finding institution, facts change over time, and – unlike legal precedents – one cannot be assured that factual statements from the Supreme Court are carefully deliberated and carry the force of law. I argue that Supreme Court statements of fact should not receive any authoritative force separate from the force that attaches to whatever legal conclusions they contributed to originally. If a fact is so central to the legal holding that the two melt together, then the Court is free to so state and thus insulate the factual conclusion from future challenge; but the precedential treatment would come only from the legal component of the decision. The default rule, I suggest, should be no precedential value for generalized factual claims – even ones that can be found in the U.S. Reports.
Thursday, April 4, 2013
Marin Levy (Duke) has posted Judging the Flood of Litigation to SSRN.
The Supreme Court has increasingly considered a particular kind of argument: that it should avoid reaching decisions that would “open the floodgates of litigation.” Despite its frequent invocation, there has been little scholarly exploration of what a floodgates argument truly means, and even less discussion of its normative basis. This Article addresses both subjects, demonstrating for the first time the scope and surprising variation of floodgates arguments, as well as uncovering their sometimes-shaky foundations. Relying on in-depth case studies from a wide array of issue areas, the Article shows that floodgates arguments primarily have been used to protect three institutions: coordinate branches of government, the state courts, and the federal courts themselves. In the former two instances, the Court’s desire to avoid floods is supported, if not compelled, by independent constitutional principles and doctrine, including separation of powers and federalism. With regard to the final instance, however, the Court has relied on floodgates arguments solely to protect itself and the rest of the federal judiciary from what it sees as an excessive workload. This kind of self-regarding floodgates concern raises difficult questions about separation of powers and the measures courts can take to ensure their ability to administer justice. The Article concludes by arguing for a strong presumption against court-centered floodgates arguments — positing that the Court should let the lower courts rely on alternative mechanisms, such as procedural rules and case-management techniques, to handle new claims instead of closing the courthouse doors to stave them off altogether.
Professor Howard Erichson (Fordham) has posted on SSRN a draft of his article, The Problem of Settlement Class Actions. Here’s the abstract:
This article argues that class actions should never be certified solely for purposes of settlement. Contrary to the widespread “settlement class action” practice that has emerged in recent decades, contrary to current case law permitting settlement class certification, and contrary to recent proposals that would extend and facilitate settlement class actions, this article contends that settlement class actions are ill-advised as a matter of litigation policy and illegitimate as a matter of judicial authority. This is not to say that disputes should not be resolved on a classwide basis, or that class actions should not be resolved by negotiated resolutions. Rather, this article contends that if a dispute is to be resolved on a classwide basis, then the resolution should occur after a court has found the matter suitable for classwide adjudication regardless of settlement.
Wednesday, April 3, 2013
Professor Joe Seiner (South Carolina) has posted on SSRN a draft of his article, Weathering Wal-Mart, which will be published in the Notre Dame Law Review. Here’s the abstract:
In Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2531 (2011), the Supreme Court held that a proposed class of over a million women that had alleged pay and promotion discrimination against the nation’s largest retailer could not be certified. According to the Court, the plaintiffs had failed to establish a common thread in the case sufficient to tie their claims together. The academic response to Wal-Mart was immediate and harsh: the decision will serve as the death knell for mass employment litigation, undermining the workplace protections provided by Title VII of the Civil Rights Act of 1964 (Title VII). This Article embraces the view offered by scholars to date, and does not engage the debate over the extent to which Wal-Mart will eviscerate the employment rights of workers.
Instead, this Article attempts — for the first time — to find a solution to the problem created by Wal-Mart. The academic literature has yet to explore possible ways to minimize the impact of the Court’s decision, and this Article seeks to fill that void in the scholarship. Though the case undoubtedly weakens the ability of Title VII plaintiffs to pursue class-action claims, the decision still leaves substantial room for creative approaches to systemic discrimination. This paper offers three such solutions to the problem created by Wal-Mart: the governmental approach, the procedural response, and revised relief. This Article critiques each approach, and explains how they are useful in pursuing workplace cases that involve company-wide discrimination. This paper also situates these proposals in the context of the existing literature.
The thesis of this Article is simple. Taking at face value the argument of scholars that Wal-Mart has created a gaping hole for victims of systemic discrimination, this paper asks what tools are still available for plaintiffs to help fill that hole. Wal-Mart signals a sea change for mass-employment litigation. The challenge now will be to find imaginative ways of pursuing systemic discrimination claims. For the first time in the academic literature, this Article takes on that challenge.
Tuesday, April 2, 2013
Yesterday’s Supreme Court order list includes “GVRs” in two class actions, remanding them “for further consideration in light of Comcast Corp. v. Behrend.” The two cases are RBS Citizens, N.A. v. Ross (No. 12-165), which was sent back to the Seventh Circuit, and Whirlpool Corp. v. Glazer (No. 12-322), which was sent back to the Sixth Circuit. For more coverage, check out:
- Lyle Denniston (SCOTUSblog)
- Lawrence Hurley (Reuters)
- Jessie Kokrda Kamens & Martina S. Barash (Bloomberg BNA, Class Action Litigation Report; subscription required)
- Alexandra Lahav (Mass Tort Litigation Blog)
Monday, April 1, 2013
Today the Supreme Court granted certiorari in Atlantic Marine Construction Co. v. U.S. District Court for the Western District of Texas (No. 12-929). The case involves the interplay between forum-selection clauses and motions to transfer venue. Here are the questions presented:
Following the Court’s decision in M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972), the majority of federal circuit courts hold that a valid forum-selection clause renders venue “improper” in a forum other than the one designated by contract. In those circuits, forum-selection clauses are routinely enforced through motions to dismiss or transfer venue under Fed. R. Civ. P. 12(b)(3) and 28 U.S.C. § 1406. The Third, Fifth, and Sixth Circuits, however, follow a contrary rule. This Petition presents the following issues for review:
1. Did the Court’s decision in Stewart Organization, Inc. v. Ricoh Corp., 487 U.S. 22 (1988), change the standard for enforcement of clauses that designate an alternative federal forum, limiting review of such clauses to a discretionary, balancing-of-conveniences analysis under 28 U.S.C. § 1404(a)?
2. If so, how should district courts allocate the burdens of proof among parties seeking to enforce or to avoid a forum-selection clause?
You can find a link to the Fifth Circuit’s decision below and other information about the case at SCOTUSblog’s casefile.