Source: https://www.chicagobusinesslitigationlawyerblog.com/category/u-s-supreme-court/
Timestamp: 2019-04-22 06:19:12+00:00

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U.S. Supreme Court Category Archives — Chicago Business Litigation Lawyer Blog Published by Chicago, Illinois Business Litigation Attorneys — Lubin Austermuehle, P.C.
Employees of a bank with multiple branch locations throughout Illinois sued to recover unpaid overtime wages under both the federal Fair Labor Standard Act (FLSA) and the Illinois Minimum Wage Law (IMWL). After the district court certified two classes of plaintiffs, the defendant bank appealed the certification to the Seventh Circuit Court of Appeals. Based in part on a U.S. Supreme Court decision clarifying the requirements for class certification, the Seventh Circuit affirmed the district court’s order. Ross, et al v. RBS Citizens, N.A., 667 F.3d 900 (7th Cir. 2012).
The plaintiffs alleged in their lawsuit that the bank had several “unofficial” policies that allowed it to deny overtime pay to employees, id. at 903, such as using “comp time” instead of overtime wages or altering employee timesheets. They also alleged that some assistant bank managers (ABMs), while officially exempt from eligibility for overtime pay, spent most of their time on non-exempt work. The plaintiffs therefore sought to certify two classes: non-exempt employees who were entitled to overtime compensation, and ABM employees who performed non-exempt work and were entitled to overtime pay. A class action requires four basic elements: “numerosity, commonality, typicality, and adequacy of representation.” Id.; Fed. R. Civ. P. 23(a). The district court certified both classes under Rule 23(b)(3) of the Federal Rules of Civil Procedure (FRCP), which applies to cases where the issues affecting all class members supersede those affecting individual members, and where a class action is the best way to resolve the conflict.
The United States Supreme Court recently ruled that federal law does not permit a court, based on a finding that individual arbitration is cost-prohibitive for a plaintiff, to strike a class arbitration waiver clause in a contract. American Express Co., et al. v. Italians Colors Restaurant, et al (“AmEx”), 570 U.S. ___, No. 12-133, slip op. (Jun. 20, 2013). The decision builds on prior decisions that have generally affirmed the enforceability of mandatory arbitration clauses, class arbitration waivers, and class action waivers, even in contracts where the bargaining power between the parties is far from equal.
The plaintiffs in AmEx are businesses that accept payments using American Express credit cards. The contract between the plaintiffs and American Express includes clauses requiring submission of all disputes to arbitration and waiving class arbitration procedures. The plaintiffs brought a federal antitrust class action lawsuit against American Express, claiming that the company engages in various monopolistic practices. The defendant brought a motion to compel arbitration under the contract and the Federal Arbitration Act (FAA), 9 U.S.C. § 1 et seq. In response, the plaintiffs offered an economist’s declaration stating that the cost of arbitration for an individual merchant asserting a federal antitrust claim would exceed any possible recovery.
In Making Our Democracy Work: A Judge’s View, Supreme Court Justice Stephen Breyer outlines his ideas about the Constitution and about the way the United States legal system works.
Wall Street Banks Benefit From Tougher Suit Standards in U.S.
Two U.S. Supreme Court decisions making it tougher to pursue lawsuits may have begun to bear fruit for corporations fighting investor claims or employee litigation.
Where once it was enough to give a defendant “fair notice” of a claim and the grounds on which it rested, the high court’s 2007 holding in Bell Atlantic Corp. v. Twombly required an antitrust complaint to contain enough facts to show a claim that is “plausible on its face.” Two years later, in Ashcroft v. Iqbal, the court applied Twombly to all federal civil suits.
The Supreme Court rulings mean that someone who wants to sue in federal court “should not subject a defendant to the costs and burdens of litigation when there is no plausible basis for their claims,” Lisa Rickard, president of the U.S. Chamber of Commerce’s Institute for Legal Reform, said in an e-mail.
Our Chicago business law lawyers were very interested in a recent Supreme Court decision upholding an established standard for determining when a mutual fund’s investment advisor has breached his or her fiduciary duty to shareholders. In Jones et al. v. Harris Associates L.P., No. 08-586 (March 30, 2010), three shareholders in the Oakmark family of mutual funds sued the funds’ investment manager, Harris Associates. They alleged that Harris charged the Oakmark funds twice as much as it did other funds, but did the same work. The situation was not challenged by the funds’ board members because they were all appointed by Harris Associates, the shareholders claimed. As a result, they said, the Oakmark funds paid $37 million to $58 million more than other funds for the services of Harris Associates in just one year.
Mutual funds typically use outside investment advisors to manage all of their affairs, including picking board members. Because this creates the potential for abuse, Congress enacted the Investment Company Act of 1940 to protect mutual fund shareholders. Among other things, that act creates a fiduciary duty for investment advisors with respect to their compensation, and allows shareholders to sue if that duty was breached. The plaintiff shareholders in this case sued Harris Associates in Chicago federal court for a breach of that fiduciary duty, alleging that it charged fees disproportionate to the services rendered and that were not equivalent to fees negotiated at arm’s length. Harris Associates successfully moved for summary judgment. The trial court, applying the standard laid down in Gartenberg v. Merrill Lynch Asset Management, Inc., 694 F. 2d 923 (CA2 1982), held that there was no evidence that the fees were outside a range that could have been produced by arm’s length negotiations.
After the Seventh denied an en banc rehearing, with a dissent by Judge Posner, the Supreme Court took up the case to resolve a split in the circuits over the standards used to judge breaches of the Investment Company Act. In its unanimous opinion, the court found that Gartenberg was indeed the correct standard, reversing the Seventh Circuit. That standard has been adopted by other federal appeals courts, the high court noted, as well as by the SEC. The opinion, authored by Justice Alito, quoted at length from the Second Circuit’s decision in Gartenberg, which among other things said that “[t]o be guilty of a violation of [the Act], … the adviser-manager must charge a fee that is so disproportionately large that it bears no reasonable relationship to the services rendered and could not have been the product of arm’s-length bargaining.” This approach is consistent with other protections in the Act and the Act’s role in federal regulations.
The Seventh Circuit erred by focusing almost entirely on full disclosure to determine a breach of fiduciary duty, the Supreme Court wrote. Courts should take a more nuanced look, giving deference to well-informed, independent board decisions and avoiding over-reliance on market comparisons. Thus, the court vacated the Seventh Circuit’s decision and sent the case back to trial court.
A little-noticed U.S. Supreme Court decision from this year will have an important effect on the work of our Illinois wage and hour class action lawyers. In Hertz Corp. v. Friend et al., No. 08-1107, __ S. Ct. __ (Feb. 23, 2010), the court ruled that the “principal place of business” test for a corporation’s citizenship refers to the place where the corporation’s high-level officers direct, control and coordinate its activities. This clarifies the law and resolves a number of discrepancies among lower courts around the country. It also overturns a Ninth U.S. Circuit Court of Appeals decision denying that federal courts have diversity jurisdiction in a proposed class-action wage-and-hour case brought by employees of Hertz Corporation.
Melinda Friend and John Nhieu sued Hertz Corp. for alleged violations of California state wage laws, and sought to certify a class of California plaintiffs with similar grievances. Hertz sought to remove the case to federal court under the Class Action Fairness Act, which allows cases to be moved when they have diverse citizenship and a dispute of more than $5 million. The plaintiffs argued that Hertz was a California citizen under Ninth Circuit precedent, which held that corporations’ “principal place of business” is where their business activity is “significantly larger” or “substantially predominates.” For Hertz, they argued, that was California because the company had the most offices and business there.
Hertz, which is incorporated in Delaware, argued that its “principal place of business” was New Jersey, where its corporate headquarters is found. It conceded that it had more offices in California than in any other state, but pointed out that California is just one of 44 states where it operates and accounts for far less than 50% of its revenue, rentals, employees or locations. Nonetheless, the district court followed Ninth Circuit precedent and sent the case back to state court. Hertz appealed, but the Ninth Circuit affirmed the ruling. The Supreme Court granted certiorari.
Turning to the meat of the case, the justices noted that the “principal place of business” language arose in response to an overload of diversity cases in federal court, as well as concerns about abuses of diversity jurisdiction. To resolve that, Congress allowed corporations to claim citizenship where they are incorporated, “and of the State where it has its principal place of business.” But this has been difficult to apply, the opinion said, resulting in splits across the circuits. To resolve it, the justices reviewed the appeals courts’ interpretations and chose a popular “nerve center” test that assigns citizenship according to where the corporation’s business is directed and controlled, as applied in cases like Wisconsin Knife Works v. National Metal Crafters, 781 F. 2d 1280, 1282 (CA7 1986).
The justices wrote that the “nerve center” will typically but not always be a headquarters, where officers and directors do business and where the public recognizes the company to be based. This helps avoid some of the flaws of approaches like the Ninth Circuit’s, they wrote, which sometimes confuse the company’s presence in a state with the state itself. For example, a rule that measures the amount of business activity in the state could grant California citizenship to many corporations, simply because California is the largest state by population. It is also a simple rule, which benefits the courts as well as corporations. This may occasionally produce odd situations, the opinion noted, as when directors and officers are housed in a different state from that where the bulk of actual business takes place. But this is a price of simplicity. Given that rule, the justices wrote, Hertz is entitled to diversity jurisdiction because it is uncontested that its “nerve center” is in New Jersey, not California. It vacated the Ninth Circuit’s ruling and returned the case to trial court.

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