Overview Of Cases Of Particular Interest Currently Pending Before The Supreme Court Of The United States
Securities Litigation
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  • Overview Of Cases Of Particular Interest Currently Pending Before The Supreme Court Of The United States

    Looking ahead, we preview cases currently pending before the Supreme Court—which have already been accepted for review by the Court, and in some cases have already been argued—that may be of particular interest to readers of the Need-to-Know Litigation Weekly.  These cases pertain to various topics in Securities Litigation, Antitrust, IP Litigation, and jurisdictional questions of broad interest.

    Securities Litigation:  Goldman Sachs Group Inc. v. Arkansas Teacher Retirement System, No. 20-222
    Relevant Issues to be Addressed:  (1) Whether defendants in a securities fraud class action under Section 10(b) of the Securities Exchange Act may rebut the presumption of classwide reliance established in Basic Inc. v. Levinson with evidence that the alleged statements at issue had no impact on the price of the security due to its generic nature, even if the evidence is relevant to the substantive element of materiality; and (2) whether defendants seeking to rebut the Basic presumption of reliance have only the burden of producing evidence or also the ultimate burden of persuasion.

    Status:  Petition granted on December 11, 2020.

    Background:  In the underlying decision by the Second Circuit, a divided panel of the Court of Appeals held that defendants may not seek to rebut the Basic presumption at the class certification stage by pointing to the generic and aspirational nature of the alleged misstatements to demonstrate that the statements had no price impact on the security because allowing defendants to do so would “smuggl[e] materiality,” a merits issue, into the price-impact inquiry reserved for class certification.  In dissent, Judge Sullivan stated that he did not believe that the majority’s “rigid compartmentalization” of the materiality and price-impact inquiries is “possible, much less required.”  Petitioners argued that the Second Circuit’s decision contravenes the Supreme Court’s decision in Halliburton II because it “erroneously bars a defendant from relying on the nature of the alleged misstatements to show the absence of an impact on the price of the relevant security when seeking to rebut the Basic presumption of reliance at the class-certification stage.”  The Second Circuit also held that defendants bear the burden of persuasion to rebut the Basic presumption, an issue as to which petitioners noted a circuit split exists.

    Potential Implications:  The implications of the Supreme Court’s decision are likely to be significant for securities fraud class actions under Section 10(b).   In particular, an affirmance, which we believe should be unlikely given Halliburton II and other class certification precedent, would likely have a significant impact on class action certifications or potential resolutions prior to that stage, as it would constrain, arguably artificially, the availability of evidence and arguments to defendants in rebutting the Basic presumption and shift the burden of persuasion to defendants.

    Antitrust:  American Athletic Conference v. Alston, No. 20-520; National Collegiate Athletic Association v. Alston, No. 20-512
    Relevant Issues to be Addressed:  Whether the Sherman Act authorizes a court to subject the product-defining rules of a joint venture to full “rule of reason” review and to hold those rules unlawful if, in the court’s view, they are not the least restrictive means that could have been used to accomplish their procompetitive goal.  The Court has also been asked to address, more specifically, whether the U.S. Court of Appeals for the Ninth Circuit erred in holding that the National Collegiate Athletic Association (“NCAA”) eligibility rules regarding compensation of student-athletes violate federal antitrust law.
    Status:  Petitions granted on December 16, 2020; cases consolidated for briefing and oral argument, to be scheduled.
    Background:  These petitions, one by the defendant NCAA and one by the 11 defendant major collegiate athletic conferences, challenge a Ninth Circuit ruling that affirmed a judgment by a district court that found, after trial, that the NCAA’s eligibility rules restricting education-related benefits for student-athletes violated the Sherman Act.  The district court applied a “rule of reason” analysis, which requires a court to weigh all of the circumstances surrounding the challenged conduct to determine whether the alleged restraint is unreasonable, taking into account the nature of the specific business, the industry, the restraint's history, and whether the defendant has market power.  The Ninth Circuit affirmed the district court’s finding that the challenged rules had a significant anticompetitive effect in the relevant market and that only some of the rules had a procompetitive purpose.  The Ninth Circuit also affirmed the district court’s findings that plaintiffs had made a “strong evidentiary showing” that certain of plaintiffs’ proposed less restrictive alternatives to the existing rules were viable in that they were “virtually as effective” in achieving the procompetitive purposes of the rules, and its injunction implementing these alternatives.  Petitioners challenge the ruling, arguing that that the Ninth Circuit improperly applied a “least restrictive analysis” test and that the NCAA “amateurism rules” are presumptively procompetitive without a fact-intensive rule of reason analysis. 
    Potential Implications:  Beyond the specific challenged findings and clearer guidelines that a Supreme Court decision may provide on how student-athletes may be compensated for participating in the billion-dollar business of college sports, the decision may have implications regarding joint ventures among competitors more generally.  The Ninth Circuit applied a fact-intensive approach to affirm that the proposed less restrictive alternative to the challenged restraint was “viable,” meaning that it is “virtually as effective” in serving the procompetitive purposes of the restraint and “without significantly increased cost” – an approach which the petitioners warn would “subject legitimate joint ventures to continuous judicial second guessing.”  Practitioners who counsel joint ventures among competitors will need to study the results of this case carefully in evaluating potential alternatives to ancillary restraints on competition.

    IP Litigation:  Smith & Nephew Inc. v. Arthrex, No. 19-1452, consolidated with United States v. Arthrex Inc., No. 19-1434, and Arthrex Inc. v. Smith & Nephew Inc., No. 19-1458

    Relevant Issues to be Addressed:  (1) Whether, for purposes of the Constitution’s Appointments Clause, administrative patent judges (“APJs”) of the U.S. Patent and Trademark Office (“USPTO”) are “Officers of the United States” (i.e., principal officers) who must be appointed by the President with the Senate’s advice and consent, or “inferior Officers” whose appointment Congress has permissibly vested in a department head; and (2) whether, if APJs are principal officers, the U.S. Court of Appeals for the Federal Circuit properly cured any Appointments Clause defect in the current statutory scheme prospectively by severing the application of the statutory provision protecting APJs from at-will removal.

    Status:  Petition granted on October 13, 2020; argument scheduled for March 1, 2021.

    Background:  In 2015, Arthrex sued Smith & Nephew for patent infringement, and a jury returned a verdict in favor of Arthrex.  Smith & Nephew sought to invalidate Arthrex’s patent in an inter partes review proceeding (“IPR”) before the Patent Trial and Appeal Board (“Board”) of the USPTO, and the Board subsequently rendered its decision invalidating Arthrex’s patent.  On appeal, the U.S. Court of Appeals for the Federal Circuit considered Lucia v. SEC, 138 S. Ct. 2044 (2018), in which the Supreme Court held that the SEC’s process for appointing ALJs was unconstitutional, and that ALJs hired by the SEC are “inferior officers” of the United States and are thus subject to the Constitution’s Appointments Clause, but left open the possibility that the Commission could remedy the constitutional issue by appointing its own ALJs.  The Federal Circuit concluded that APJs, who preside over IPRs, are not inferior officers but principal officers, who may only be appointed by the President with the advice and consent of the Senate.  The Federal Circuit concluded APJs are accordingly appointed in violation of the Constitution’s Appointments Clause.  Instead of striking down the IPR system in its entirety, however, the Federal Circuit found that this constitutional defect could be remedied by severing only a portion of the statute (5 U.S.C. § 7513(a)), which protects APJs from at-will removal.  The Federal Circuit reasoned that striking that section would take away the principal-officer-status of APJs and render them merely “inferior Officers.”  In doing so, the Federal Circuit opined that Congress intended for the IPR system to function and would have preferred a Board of APJs that are removable at will rather than no Board at all.  Petitioners contend that the Federal Circuit correctly held that APJs are principal officers, but that severance of the at-will removal section does not cure the constitutional violation.

    Potential Implications:  If the Supreme Court determines either that APJs are inferior officers, or that the Federal Circuit’s severance of the at-will removal section of the statute sufficiently resolves any constitutional defect, the impact of this case will likely be rather narrow, affecting only those PTAB cases currently held in administrative abeyance.  If, however, the Supreme Court agrees with petitioners, this case has the potential to disrupt the IPR system, although the full scope of such an impact would depend on the exact contours of the decision and could be blunted by legislative and administrative action. 

    Jurisdiction:  Ford Motor Co. v. Montana Eighth Judicial District Court, No. 19-368, consolidated with Ford Motor Co. v. Bandemer, No. 19-369

    Relevant Issue Addressed:  Whether a court can exercise personal jurisdiction over a non-resident defendant that conducts extensive activities within the state, where those activities were not the proximate cause of plaintiff’s injury.

    Status:  Petitions granted and actions consolidated on January 17, 2020; argument heard on October 7, 2020.

    Background:  In this consolidated action challenging decisions by the Supreme Court of Montana and the Supreme Court of Minnesota, each of these state supreme courts held that lower courts had properly exercised personal jurisdiction over Ford Motor Company in suits arising from accidents in those states involving Ford vehicles, even though the specific vehicles at issue had not been designed, manufactured, or sold in that state.  Ford contends that the Supreme Court should reverse the decisions of the state supreme courts, on the basis that the Due Process Clause of the Fourteenth Amendment permits a state court to exercise specific personal jurisdiction over a non-resident defendant only when plaintiff’s claims “arise out of or relate to” defendant’s contacts with that state and that the “arise out of or relate to” requirement is satisfied only when a defendant’s activities in the forum state proximately caused plaintiff’s injury.  In opposition, plaintiffs advocate for a broader “relatedness” test that examines (1) the forum state’s interest in adjudicating the controversy and (2) the scope of the legal obligations that defendant has subjected itself to in the forum based on its in-state contacts. 

    Potential Implications:  The Supreme Court’s decision is expected to be relevant to whether and when non-U.S. defendants and U.S. defendants sued outside of their home jurisdiction can be subjected to the jurisdiction of a particular court where no causal connection exists between defendant’s alleged contacts with that state and plaintiff’s claims.  The Supreme Court previously explained that for specific personal jurisdiction to exist, “the defendant’s suit-related conduct must create a substantial connection with the forum State.”  Walden v. Fiore, 571 U.S. 277, 284 (2014).  The Supreme Court then further clarified the limits of specific personal jurisdiction in state courts, holding that a connection between a defendant’s contacts with the forum and the claims at issue remains essential in establishing whether a state court has such jurisdiction, and rejecting the California Supreme Court’s “sliding scale approach” to specific jurisdiction.  Bristol-Myers Squibb Co. v. Superior Court of Cal., San Francisco Cty., 137 S. Ct. 1773 (2017).  If the Supreme Court reverses the state supreme court decisions here, that would likely provide additional confirmation that specific jurisdiction requires a causal connection between defendant’s forum contacts and a plaintiff’s claims, and that courts cannot exercise specific personal jurisdiction merely on the basis that a defendant’s contact to the state “relate” to the claim.