Worst Decisions: A Tie for #1 - AT&T Mobility v. Concepcion

AFJ is counting down the 10 worst decisions of the Corporate Court's 2010-11 term. Yesterday, we looked at one of the two worst, Wal-Mart v. Dukes, which allows corporations to discriminate as long as they do so on an enormous scale

In our tie for the #1 slot, this case has profound ramifications for the millions of Americans who have to sign contracts to get a job, or to buy a product or service.

Worst Decisions of the 2010-11 Corporate Court Term: #1 (tie) AT&T Mobility v. Concepcion
Giving Corporations a License to Steal

In a 5-4 vote, the Corporate Court majority enacted sweeping protections for corporate wrongdoers. Consumers could once band together to access justice in court when defrauded by corporations.  After AT&T, each consumer will likely be forced to fight it out alone before a private arbitrator chosen by the company that cheated them. This divide-and-conquer strategy is favored by corporate scofflaws because they know isolated cases are often not worth bringing at all. A company may have reaped millions in ill-gotten gains, but what consumer would sue to regain damages like the $30.22 unlawfully charged to the Concepcións and other consumers in this case?

The majority achieved this radical result by transforming the 1925 Federal Arbitration
Act (FAA), which was enacted to protect arbitration among corporate equals, into one of big business’s most powerful shields against accountability. To activate the shield, corporate lawyers need only draft contracts that people must sign if they want to buy a product or service or get a job and which force consumers and employees into binding one-on-one arbitration when a dispute arises.

By re-writing an 86-year-old federal statute, five justices enabled AT&T to reap millions by advertising “free” cell phones to lure customers, unlawfully charging them a $30 sales tax, and hiding clauses in the service contract that forced consumers to waive their right to join a lawsuit with others defrauded in the same scheme.

California’s Supreme Court considered such adhesion contracts to be unconscionable, and struck them down. But where California judges saw injustice for consumers, the five conservative justices of the Corporate Court saw only burdens on corporate defendants.  Corporations will now be able to decide on their own which civil rights and consumer protections they want to obey, knowing that there will be no effective means available to their victims to obtain redress.

AT&T v. Concepción is tied for number one on AFJ’s Worst Decisions of the 2010-11 Corporate Court Term because nearly every aspect of Americans’ everyday lives is controlled by contracts that individuals must sign to get a job, or buy a product or service. After AT&T, these “license to steal” clauses will almost certainly appear with greater frequency.

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Worst Decisions: A Tie for #1 - Wal-Mart v. Dukes

AFJ is counting down the 10 worst decisions of the Corporate Court's 2010-11 term. Yesterday at #3, we talked about Janus Capital v. First Derivative, which gives mutual-fund bosses "an easy way to skirt class-action lawsuits."

In our tie for the #1 slot, one of the contenders had an enormous and immediate impact on more than a million women in the workforce, and opens the door for discrimination on a massive scale.

Worst Decisions of the 2010-11 Corporate Court Term: #1 (tie) Wal-Mart v. Dukes

In Wal-Mart, the Supreme Court prevented more than a million women from banding together to pursue their case against the discriminatory practices of Wal-Mart management. The 5-4 majority rewrote the federal rule governing class actions by setting a higher “commonality” threshold for all plaintiffs. This will likely bar employees from seeking injunctive relief that previously only needed to pass an “easily satisfied” test.

The majority created new hurdles for disparate-impact cases, where subjective personnel decisions have led to widespread gender or racial disparities in the workforce, by holding that “proving a … disparity is not enough,” and rejecting plaintiffs’ overwhelming statistical evidence of widespread discrimination. The majority instead suggested that victims must prove that conscious and intentional discrimination by top management directs the employment decisions made below in order to obtain class certification. These nearly impossible standards will undermine the incentive for employers to set up objective pay and promotion practices based on published criteria and clear merit-based evaluations of applicants. These practices are very effective at combating the kind of discrimination that occurred at Wal-Mart, where job postings were non-existent and women had to wait for the “tap on the shoulder” (that mostly never came) from mostly male managers to be promoted.

The majority also elevated the company’s written non-discrimination policy to exalted status – despite a complete lack of evidence that it was followed – and assumed that “most managers in any corporation … would select sex-neutral, performance-based criteria for hiring and promotion.” The 120 affidavits from women being called “Janie Qs’” at executive meetings, being paid less than a just-hired 17-year-old boy because “you aren’t male, so you can’t expect to be paid the same,” or told to “doll up” and “blow the cobwebs off” make-up were dismissed as “prov[ing] nothing at all.”

Wal-Mart v. Dukes is the one of the worst decisions of the 2010-11 Corporate Court term because it will allow corporations to get away with discrimination as long as they discriminate on a massive scale.

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Worst Decisions, #3: Janus Capital v. First Derivative

AFJ is counting down the 10 worst decisions of the Corporate Court's 2010-11 term. Yesterday at #4, we talked about American Free Enterprise v. Bennett, which makes it easier for wealthy special interests to buy elections.

Worst Decisions of the 2010-11 Corporate Court Term: #3: Janus Capital Group v. First Derivative Traders

In a 5-4 decision, the Corporate Court created a major new loophole that allows holding companies in the $12 trillion mutual-fund industry to escape liability for securities fraud.  The corporations may now create subsidiaries that can then make false and misleading statements on behalf of the parent company and that have no assets other than investors’ money.

Janus Capital Group is a huge financial investment corporation that has created numerous subsidiaries, including Janus Investment Fund, which deliberately misled investors in its mutual fund prospectus by telling the public that it did not allow hedge funds to engage in “market time” transactions. Behind the scenes, hedge funds were routinely engaging in just those sorts of timing transactions with Janus. When the truth came out, the Janus stock dropped precipitously, costing deceived investors millions.

Rule 10b-5 of the securities laws prohibits “mak[ing] any untrue statement of a material fact.” In this case, the deception about market timing certainly qualified as an untrue material statement. However, the pro-corporate majority decided Janus Capital could not be liable because it had not “made” the statement, only Janus Investment Fund had. It arrived at this fiction by concluding that only the party with “ultimate authority” over a statement can “make” it. A speechwriter does not a make a statement, only the speaker does, the majority reasoned.

The dissent attacked this conclusion as a distortion of the common use of the English language. “Every day, hosts of corporate officials make statements with content that more senior officials of the board of directors have ‘ultimate authority’ to control…. Nothing in the English language prevents one from saying that several different individuals, separately or together, ‘make’ a statement that each has a hand in producing.”

The tipping point between these competing visions should turn on whether one believes Congress, in drafting Rule 10b-5, intended to immunize corporate fraud or protect investors. The pro-corporate majority argues that Rule 10b-5 must be read narrowly, which in this instance would immunize corporate fraud. As Justice Breyer noted in dissent, the majority’s interpretation would often leave no one accountable under the securities laws, even for fraud committed through intentional lying, if the subsidiary’s board was as deceived as investors were by the original perpetrator’s lies.  It is difficult to imagine that Congress intended to open such a gaping loophole in the law.

Janus Capital Group v. First Derivative Traders is number three on AFJ’s Worst Decisions of the 2010-11 Corporate Court term because, as one article put it, “[t]he U.S. Supreme Court has shown mutual fund bosses an easy way to skirt class-action lawsuits.”

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Worst Decisions #4: Arizona Free Enterprise v. Bennett

AFJ is counting down the 10 worst decisions of the Corporate Court's 2010-11 term. Yesterday at #5, we talked about Connick v. Thompson, which makes it easier for prosecutors to hide evidence.

Worst Decisions of the 2010-11 Corporate Court Term: #4 Arizona Free Enterprise Club’s Freedom PAC v. Bennett 
Protecting the Power of Wealthy Special Interests to Buy Elections

In a 5-4 vote, the Supreme Court overturned an inventive policy that Arizona implemented in 1998 to combat corruption by reducing the influence of powerful special interests in elections. 

Arizona voters passed the Citizens Clean Election Act in 1998 in response to a state political culture that the New York Times called “an open sewer of corruption.”  Prior to the Act, two consecutive governors were removed for corruption and almost 10% of the state legislature was charged with misconduct, including a chairman of the House Judiciary Committee who was caught stuffing a gym bag with $55,000 in cash.  The Act allowed candidates who abide by strict spending limits to receive public funds for their campaigns and to receive increases in those funds to match spending by well-funded independent groups supporting their opponents or wealthy self-financing candidates.

The Supreme Court overturned the Act in an ironic interpretation of First Amendment free speech law.  The Court’s conservative majority examined a law that increased speech by providing candidates with more resources to communicate with voters and determined that it violated the First Amendment by substantially burdening privately funded candidates. 

In her dissent, Justice Kagan stated that preventing corruption following a political scandal should be deemed a compelling government interest that passes constitutional muster.

She added that the law applies equally to candidates of all viewpoints, and that what the Act’s opponents seek “is essentially a right to quash others’ speech through the prohibition of a (universally available) subsidy program.”

Arizona Free Enterprise Club’s Freedom PAC v. Bennett is number four on AFJ’s Worst Decisions of the 2010-11 Corporate Court term because the Court has closed off another avenue of reform designed to reduce the undue influence of corporate interests and wealthy candidates in political races.

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Worst Decisions, #5: Connick v. Thompson

AFJ is counting down the 10 worst decisions of the Corporate Court's 2010-11 term. Last Friday, at #6, we talked about PLIVA v. Mensing, which gave generic drug-makers a free pass on safety labeling.

Worst Decisions of the 2010-11 Corporate Court Term: #7 Connick v. Thompson
Making it Easier for Prosecutors to Hide Evidence at the Expense of Innocent Defendants

A 5-4 split decision protected district attorneys who allow prosecutors in their office to illegally withhold exculpatory evidence from criminal defendants.  

More than 14 years ago, John Thompson was accused of a high-profile murder.  Following the publicity surrounding the murder accusation, victims of an unrelated armed robbery came forward and accused Thompson of that robbery.  Thompson was convicted of the robbery after prosecutors hid the fact that the robber’s blood type did not match Thompson’s.

In the subsequent murder trial, Thompson did not testify to rebut the charges against him because doing so would have allowed his robbery conviction to be entered into evidence.  Thompson was convicted of murder and spent 14 years on death row.  Thompson’s private investigator found the exculpatory blood evidence one month before his scheduled execution.  As a result, both of Thompson’s convictions were vacated.

Following his release, Thompson won $14 million in damages from Harry Connick, the Orleans Parish District Attorney, for his failure to train prosecutors about required disclosures of exculpatory evidence to defendants under Brady v. Maryland. The district attorney appealed this award, arguing that he could not be liable based on a single violation unless strong indications existed that training was necessary.  Justice Thomas, writing for the Court, reversed the award, holding that “Thompson did not prove that [Connick] was on actual or constructive notice of, and therefore deliberately indifferent to, a need for more or different Brady training.”

Justice Ginsburg, in a scathing dissent that she read from the bench, argued that the conservative majority ignored extensive evidence demonstrating to the district attorney the need for training.  The Court dismissed as irrelevant four Orleans Parish convictions that were reversed in the 10 years prior to Thompson’s armed robbery trial because of Brady violations.  In addition to the blood evidence, the dissent described the prosecution’s failure to inform Thompson of several pieces of evidence that called into question the credibility of key witnesses.

Justice Ginsburg wrote that “it was hardly surprising that Brady violations in fact occurred” since: “(1) Connick, the Office’s sole policymaker, misunderstood Brady.  (2) Other leaders in the Office, who bore direct responsibility for training less experienced prosecutors, were similarly uninformed about Brady.  (3) Prosecutors in the Office received no Brady training.  (4) The Office shirked its responsibility to keep prosecutors abreast of relevant legal developments concerning Brady requirements.”  The dissent characterized the district attorney’s office as a “tinderbox” in which “Brady violations were nigh inevitable.”  Thompson’s expert witness called Connick’s supervision of prosecutors on Brady “the blind leading the blind.” 

Connick v. Thompson is number five on AFJ’s Worst Decisions of the 2010-11 Corporate Court term because district attorneys will now have less of an incentive to ensure that the prosecutors who work for them understand their legal obligations. As a result, innocent criminal defendants may never learn of favorable evidence that could save their lives and ensure their freedom.

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Worst Decisions, #6: PLIVA v. Mensing

AFJ is counting down the 10 worst decisions of the Corporate Court's 2010-11 term. Yesterday, at #7, we talked about Ashcroft v. Al-Kidd, which protected the unfair tactics used to detain an American citizen.

Worst Decisions of the 2010-11 Corporate Court Term: #6 PLIVA v. Mensing
Giving Generic Drug Makers a Free Pass to Withhold Information About Drug Safety

In PLIVA, Inc., the Court’s 5-4 conservative majority immunized generic drug manufacturers, whose drugs comprise 75 percent of the market, from state tort liability when they fail to inform the Federal Drug Administration (FDA) that their labels inadequately warn consumers of health risks.

Brand-name drug manufacturers have the ability and the duty to change label warnings based on newly-discovered risks without consulting the FDA, but generic drug manufacturers need only copy brand-name warnings. To enhance drug safety, the FDA took the position that generic-drug makers must inform the agency when its warning labels, copied from the brand-name label, do not account for newly discovered risks. Often generic manufacturers will know of such risks because more people take generic drugs and because they come on the market later than brand-name drugs, which offers more time to assess side effects. In this case, the risks stemmed from taking Reglan, a drug that caused a severe and irreversible neurological disorder as a side effect in a growing number of patients.

The majority concluded that it was impossible for generic-drug makers to meet both the federal requirement that they copy brand-name labels, and state law duties to provide adequate warnings, and therefore gave no effect to FDA’s position that the generic drug makers should have taken steps to warn the agency of the problems with Reglan. The majority acknowledged that, from the perspective of plaintiffs, its ruling “makes little sense.”

In the dissent’s view, the generic-drug makers should not have been permitted to claim “impossibility” because they never even attempted to warn the FDA that the newly-discovered risks of Reglan were not included in the brand-name or generic warning labels for the drug. It is implausible that the FDA would not have asked the brand-name manufacturer, and by extension the generic makers, to change labels if the defendants had warned the agency of adverse effects. It is equally implausible that Congress intended to protect only consumers of brand-name drugs while leaving users of generic drugs without recourse.

In a cruel twist, the plaintiffs received the generic version of Reglan only because their pharmacist substituted it for the brand-name drug their doctors prescribed. Had they received the brand-name version, they would have at least been able to sue because of the greater duties of brand-name drug manufacturers. Instead, the Corporate Court’s decision leaves them with no remedy.

PLIVA v. Mensing is number six on the Worst Decisions of the 2010-11 Corporate Court term because it gives generic-drug manufacturers a free pass to sit back and do nothing when their warning labels are dangerously inadequate.

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Worst Decisions, #7: Ashcroft v. al-Kidd

AFJ is counting down the 10 worst decisions of the Corporate Court's 2010-11 term. Yesterday, at #8, we talked about J. McIntyre Machinery v. Nicastro, which protected foreign corporations from accountability when their products cause harm.

Worst Decisions of the 2010-11 Corporate Court Term: #7 Ashcroft v. al-Kidd
Giving the Seal of Approval to Harsh Imprisonment of Americans under False Pretenses

The Supreme Court threw out a lawsuit brought against former Attorney General John Ashcroft by Abdullah al-Kidd, an American citizen who was detained for 16 days in harsh conditions.

Al-Kidd was accused of no crime and responded with full cooperation to several FBI requests for information.  Nonetheless, federal law enforcement, which had no intention of obtaining testimony, detained al-Kidd using a material witness warrant supported by an affidavit that included several falsehoods and omissions. As a result, al-Kidd was held in a cell that was lit 24 hours a day and was subjected to strip searches, body cavity searches, and shackling of his wrists, legs, and waist.

All eight justices who heard the case held that Ashcroft was entitled to qualified immunity because there was no “clearly established” law stating that using a material witness warrant in the way he used it was illegal.  Nonetheless, Chief Justice Roberts and Justices Scalia, Thomas, and Alito sought to go even further.  They stated conclusively that Ashcroft’s actions were lawful despite the federal government’s use of false and misleading information to obtain the warrant.  For example, law enforcement stated that al-Kidd purchased a first-class one-way ticket to Saudi Arabia instead of the coach round-trip ticket he actually purchased.  Law enforcement also did not tell the magistrate that they had no intention of asking al-Kidd to testify or that his entire family lived in the United States, where he was born and raised.

Justice Ginsburg, in an opinion concurring in the judgment that was joined by Justices Breyer and Sotomayor, described the Court’s assumption as “puzzling.”  Citing the omissions and falsehoods used to obtain the warrant, she added that “there is strong cause to question the Court’s opening assumption—a valid material-witness warrant—and equally strong reason to conclude that a merits determination (that Ashcroft acted lawfully) was neither necessary nor proper.”

Ashcroft v. al-Kidd is number seven on AFJ”s Worst Decisions of the Corporate Court Term because it denied justice to an American citizen who suffered profound harm at the hands of his government and because the leading four-person opinion needlessly approves deceptive tactics used to unfairly arrest of innocent Americans.  

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Worst Decisions, #8: J. McIntyre Machinery v. Nicastro

AFJ is counting down the 10 worst decisions of the Corporate Court's 2010-11 term. Yesterday, at #9, we talked about Sorrell v. IMS Health, which gives corporations a First Amendment right to use private medical information to market expensive drugs.

Worst Decisions of the 2010-11 Corporate Court Term: #8 J. McIntyre Machinery v. Nicastro
Protecting Foreign Corporations from Accountability When Their Products Cause Harm

The Corporate Court ruled 6-3 in this case against Robert Nicastro, a man who lost four fingers when his hand was caught in an industrial cutting machine he used at his job in New Jersey.  Nicastro claimed that the machine was missing an important safety guard that could have prevented the injury.  The Court ruled that a New Jersey state court could not even hear Nicastro’s negligence claim against J. McIntyre Machinery, the machine’s England-based manufacturer.  The majority held that the state court lacked jurisdiction over the company because J. McIntyre had not engaged in conduct that was purposely directed at the New Jersey market. 

J. McIntyre had an exclusive American distributor that it hoped would sell to every region of the United States.  Nicastro’s employer purchased the machine that injured him at a trade show in Las Vegas.

Justice Ginsburg’s dissent argued that J. McIntyre should not be granted a free pass to avoid liability in every state court in the United States merely because it directed its distributor to attract customers “from anywhere in the United States.”  J. McIntyre UK’s president described the company’s strategy in the following way: “All we wish to do is sell our products in the [United] States—and get paid!”  Ginsburg argued that “[t]he machine arrived in Nicastro’s New Jersey not randomly or fortuitously, but as a result of the U.S. connections and distribution system that McIntyre UK deliberately arranged.”  The dissent contrasted what Nicastro was asking of J. McIntyre with what the majority was now requiring of Nicastro.

On what measure of reason and fairness can it be considered undue to require McIntyre UK to defend in New Jersey as an incident of its efforts to develop a market for its industrial machines anywhere and everywhere in the United States?  Is not the burden on McIntyre UK to defend in New Jersey fair, i.e., a reasonable cost of transacting business internationally, in comparison to the burden on Nicastro to go to Nottingham, England to gain recompense for an injury he sustained using McIntyre’s product at his workplace in Saddle Brook, New Jersey? 

J. McIntyre Machinery v. Nicastro is number eight on AFJ’s Worst Decisions of the Corporate Court Term because the Court ensured that many individuals who are harmed by defective products made by foreign manufacturers will be denied access to justice even when the manufacturers are intentionally profiting from U.S. consumers.

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Worst Decisions, #9: Sorrell v. IMS Health

AFJ is counting down the 10 worst decisions of the Corporate Court's 2010-11 term. Yesterday, at #10, we talked about Schindler Elevator v. United States, which protects corporations who cheat American taxpayers.

Worst Decisions of the Corporate Court Term: #9: Sorrell v. IMS Health
Giving Corporations “Free Speech” Rights to Profit from Medical Records  

In the spirit of Citizens United, the Corporate Court again created expansive “free speech” rights for corporations at the expense of everyday Americans.  Data mining corporations use prescription information that doctors are required by law to collect to target those doctors with sales pitches about various drugs.  Vermont restricted pharmacies from selling such information without the individual doctor’s consent.  Research shows that such marketing affects doctors’ prescribing habits, which forces patients to buy expensive versions of medication over less expensive and equally effective alternatives.

Vermont argued that the pharmacies do not have an unfettered right to use the records as they wish, and noted that the Supreme Court has held that when the government compels production of otherwise private information, it may restrict further use of that information.  Indeed, limits on the use and disclosure of medical records are widely accepted speech restrictions.

In a 6-3 vote, the Corporate Court held that Vermont illegitimately burdened the corporations’ free speech rights and that the statute will have to survive strict scrutiny, a heightened standard that typically results in laws being overturned.

As Justice Breyer noted in his dissent, “[n]othing in Vermont’s statute undermines the ability of persons opposing the State’s policies to speak their mind or to pursue a different set of policy objectives through the democratic process.”  The statute only seeks to prevent corporations from using for marketing purposes information that doctors are required to collect about their prescriptions.  Nonetheless, the Court held that the corporations deserve the same heightened First Amendment protection to use private medical data to pad their profits that everyday Americans receive when voicing their opinions about public issues.       

Sorrell v. IMS Health is number nine on AFJ’s Worst Decisions of the Corporate Court Term because it grants corporations a First Amendment right to use private medical information against the wishes of doctors to market expensive drugs to those doctors.   

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Counting Down the Worst Decisions of the Corporate Court's 2010-11 Term

This was another very good year for corporate interests at the U.S. Supreme Court, and a very bad one for Americans seeking fairness and justice.

The Corporate Court under Chief Justice John Roberts is radically reshaping the law to insulate corporations from accountability for conduct that discriminates against, defrauds, or injures everyday Americans. In several cases, the five conservative justices were able to force those suffering from corporate malfeasance into arenas where they have to face powerful corporate opponents alone, while ensuring that big business doesn't have to face unified groups of those it has harmed.

Collectively, these decisions could be worth tens of billions of dollars to corporate bottom lines.

Over the next 10 days, AFJ will highlight 10 of the worst decisions of the Corporate Court's 2010-11 term.

#10: Schindler Elevator v. United States ex rel. Kirk

A 5-3 majority (Justice Kagan recused) protected companies that defraud the federal government by narrowing the types of lawsuits whistleblowers can bring to recoup corporate ill-gotten gains.

The case was brought by Daniel Kirk, a Vietnam veteran who suspected that his employer, Schindler Elevator Corp., had illegally accepted a large federal contract while lying about establishing a veteran-assistance program that the contract required. Kirk confirmed those suspicions after examining documents his wife received in response to a Freedom of Information Act request.

Whistleblowers like Kirk who uncover fraud against the federal government can sue under the False Claims Act on behalf of the United States and be awarded a portion of any recovery the government receives from the lawsuit. Indeed, of the nearly $30 billion in damages that have been recovered under the False Claims Act since 1987, 60 percent originated from suits initiated by private individuals. The Department of Justice regards these suits by individuals as "[o]ne of the powerful tools in the effort" to combat fraud. However, individuals cannot sue if the lawsuit is based upon information in a government "report" because, arguably, that information is already known by the government and does not depend on the wistleblower for its discovery.

This case turned on whether the loose documents produced in response to Kirk's FOIA request were a government "report." To find that they were, as the five conservative justices did, let Schindler Elevator's fraud off the hook. The opinion ignored what "report" meant in the context of the relevant statute -- as the results of an investigation -- and inexplicably looked to the dictionary instead. What logic is there in blocking whistleblower lawsuits when the government has no idea that corporate fraud is occurring?

Justice Ginsburg's dissent stated that the ruling "weakens the force of the [False Claims Act] as a weapon against fraud" and "severely limits whistleblowers' ability to substantiate their allegations."

Schindler Elevator v. United States ex rel. Kirk is number 10 on our list of Worst Decisions of the Corporate Court Term because it protects corporations who cheat American taxpayers.

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