U.S. Supreme Court Justice Antonin Scalia’s death on Saturday has already triggered concerns about the possible outcome of the numerous important cases now pending before the Court, and has further agitated an already tumultuous Presidential election campaign. The furious debate that is already well underway about the nomination of Justice Scalia’s successor could be one of the key issues in the current campaign, and perhaps beyond. While these controversies are likely to continue and to dominate the headlines for some time to come, a different process will also be taking place, and also will likely continue for some time – that is, the debate over Justice Scalia’s legacy.
Justice Scalia undoubtedly will be most remembered for his opinions and his dissents on the many constitutional cases that came before the Court during the nearly 30 years on which he was the high court’s bench. I will leave it to others to address the questions surrounding the legacy of Justice Scalia’s opinions and dissents in the constitutional arena. But Justice Scalia’s legacy extends far beyond just the constitutional cases, into many other areas of the law. Of particular interest to readers of this blog are Justice Scalia’s opinions in the business law arena. Of the many opinions Justice Scalia wrote, several stand out in my mind: Justice Scalia’s opinion for the majority in Morrison v. National Australia Bank; and his majority opinions in three important class action cases: Wal-Mart Stores v. Dukes; AT&T Mobility v. Concepcion; and American Express v. Italian Colors Restaurant.
Justice Scalia’s opinion for the majority in the Morrison case has unquestionably had a significant impact on securities litigation, inside the United States and even beyond. The opinion’s statements about the extraterritorial application of U.S. laws have had an important impact on other areas of the law as well. It is easy to forget now, but the outcome of the Court’s consideration of the issues in the Morrison case came as more than a little bit of a surprise.
The Court had granted cert in the Morrison case following the Second Circuit’s ruling under its well-established and highly evolved “conduct and effects” test – under which a U.S. court could exercise jurisdiction over claims of securities fraud in connection with the purchase or sale of securities of a non-U.S. company, even if those securities were purchased on a non-U.S. exchange, if there conduct in connection with the fraud or effects from the fraud took place in or occurred in the United States. Although the Supreme Court affirmed the Second Court’s holding the in the case, it did so while at the same time completely rejecting the analytic basis on which it rested.
Specifically, and as discussed in detail here, Justice Scalia’s majority opinion in the case completely rejected the two-part “conduct and effects test” on which the Second Circuit had relied, as well of several decades of lower court jurisprudence addressing issues and questions that the test presented.
What mattered in questions of whether or not the U.S. securities laws applied was not where the alleged misconduct took place or where its effects occurred; the focus of the Exchange Act, Justice Scalia wrote, “is not upon the place where the deception originated but upon purchases and sales of securities in the United States.” Section 10(b), Justice Scalia said, “does not punish deceptive conduct, but only deceptive conduct ‘in connection with the purchase or sale of any security registered on a national securities exchange or any security not so registered.’”
In light of this analysis, Justice Scalia wrote that the U.S. securities laws apply only to “transactions in securities listed on domestic exchanges, and domestic transactions in other securities.”
Justice Scalia’s opinion in the Morrison case, and in particular the “domestic transactions” analysis in his opinion, put an end to a major cottage industry that had emerged in the U.S., which was the litigation of securities suits against non-U.S. companies on behalf of foreign shareholders who had purchased their shares outside the U.S. (so-called f-cubed cases). While lower courts have continued to struggle with many of the decision’s implications for other kinds of cases (for example with respect to the question of whether or not Morrison precludes claims in U.S. court by shareholders who purchased unlisted ADRs in a non-U.S. company in the U.S.), there is no doubt that the decision has had an enormous impact.
As a result of Morrison, litigation involving securities claims on behalf of claimants who purchased shares on a non-U.S. exchange generally have been precluded from the U.S. courts. This development has not only meant a significant change on the U.S. securities litigation environment, it has also had an impact on developments outside of the U.S. as well.
Courts in a number of countries (including Canada and The Netherlands) have expressly noted the absence of a U.S. forum in which aggrieved shareholders might pursue their investor claims as a reason to allow investor claims in the courts to go forward. The unavailability of the U.S. forum has also caused many other investors to seek to pursue their claims in their home country rather than in the U.S, which in turn has not only led to an increase in investor litigation outside of the U.S. but it has also led to the development of procedures and even remedies in those other jurisdictions’ courts. These trends are well underway in a number of countries and are likely to continue in the months and years ahead.
While there are many other cases in which Justice Scalia wrote important opinions, among the business law cases that may have the most significant impact in which Justice Scalia wrote the majority opinions are three important class action cases, Wal-Mart Stores v. Dukes; AT&T Mobility LLC v. Concepcion; and American Express v. Italian Colors Restaurant.
The Wal-Mart case involved employment discrimination claims in which the named plaintiff purported to assert claims on behalf of a class of 1.5 million current and former female Wal-Mart employees. The plaintiff claimed that local managers’ discretion over pay and promotions had an unlawful disparate impact on women, and that the company’s refusal to constrain its managers’ discretion amounted to disparate treatment.
In order to try to establish the element of “commonality” which is a prerequisite to the assertion of claims upon behalf of a class, the plaintiff did not assert that Wal-Mart had an express policy of discrimination against its female employees; rather, the plaintiffs argued that the commonality of the 1.5 million class members’ claims derived from the local manager’s discretion. In effect, the plaintiffs were arguing that the non-policy (allowing local manager discretion) was a policy that affected all of the female employees.
In his 5-4 majority opinion in the Wal-Mart case, Justice Scalia said (rejecting the statistical evidence and expert testimony on which plaintiffs sought to rely) that the plaintiffs “have not identified a common mode of exercising discretion that pervades the entire company.” He added that “other than the bare existence of delegated discretion, respondents have identified no ‘specific employment practice,’ much less one that ties all their 1.5 million claims together.” The majority concludes that because the plaintiffs “provide no convincing proof of a companywide discriminatory pay and promotion policy, we have concluded that they have not established the existence of any common question.”
Critics of Justice Scalia’s majority opinion said that it threw out decades of employment discrimination law and raised huge barriers to future large-scaled discrimination cases. There seems to be substantial support for the contention that the Wal-Mart case has had a significant impact on class action employment litigation.
Concepcion and Italian Colors
In the latest of a series of decisions dealing with the enforceability of arbitration agreements, the U.S. Supreme Court in its 2011 decision in the AT&T Mobility LLC v Concepcion case held that the Federal Arbitration Act preempts state laws that refuse to enforce class action waivers in consumer arbitration agreements as unconscionable or against public policy. Justice Scalia wrote the 5-4 majority opinion in the case, writing that “Requiring the availability of classwide arbitration interferes with fundamental attributes of arbitration,” Scalia wrote. “We find it hard to believe that defendants would bet the company with no effective means of review, and even harder to believe that Congress would have intended to allow state courts to force such a decision.”
The Concepcion decision has had a significant impact in the consumer and employment practices class action arenas. The significance of the Concepcion opinion was magnified in the U.S. Supreme Court’s 2013 opinion in the American Express v. Italian Colors Restaurant decision (here), in which Justice Scalia wrote the opinion for a 5-3 majority, which held that an arbitration agreement with a class action waiver is enforceable even it meant that an individual’s cost of pursuing a claim exceeded the economic value of the individual’s potential recovery.
Justice Scalia’s majority opinion in the Italian Colors decision, which is discussed in detail here, held that the Federal Arbitration Act does not permit courts to invalidate a contractual waiver of class arbitration on the grounds that the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery. The opinion also dramatically narrowed the “effective vindication” exception to the enforceability of arbitration agreements, stating that the exception, while valid, would apply only in the event of a provision “forbidding the assertion of certain statutory rights” or the inclusion of fees so high “as to make access to the forum impracticable.”
Though the Italian Colors case arose in the context of an antitrust claim, it has broad applicability to a wide variety of claims. Justice Scalia’s majority opinions in the Concepcion and Italian Colors cases have been interpreted by the lower courts to have wide applicability to many other types of commercial and consumer agreements. As a result of the decisions, businesses that want to avoid class actions have wide latitude to include waivers of class actions in arbitration clauses.
There is no question that Justice Scalia’s opinions in the class action cases are important, and that even in just the short time that has elapsed since the opinions were published the opinions have had a significant impact. Indeed, in the February 15, 2016 Law 360 article discussing Justice Scalia’s legacy (here, subscription required), one commentator is quoted as saying that of the majority opinions that Justice Scalia wrote, the class action opinions may be the justice’s most consequential in terms of how many Americans are directly affected. The class action opinions, the commentator said, will be the ones that have the most impact on people’s lives.
These cases are just four examples of the enormous impact that Justice Scalia had on the development and evolution of the law during his long tenure on the Court. They also underscore the fact that Justice Scalia’s impact was not limited just to the constitutional cases in which he was involved. His impact extended to many other areas of the law as well. While there is no doubt that there are sharply divergent points of view regarding the Justice Scalia’s legacy, I don’t think there can be any question that he was one of the most important and influential figures on the Court, and indeed perhaps within American society, over the last 30 years.