Supreme Court Shields Corporations From Liability Risks

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In its marquee cases on issues such as gay marriage and race relations, the Supreme Court wrestles with the meaning of majestic constitutional phrases -- “equal protection of the laws” and that sort of thing. In the cases that matter the most to businesses, though, the justices address less-grand-sounding provisions such as Rule 23 of the Federal Rules of Civil Procedure, which governs class actions.

It’s not terribly sexy stuff, but arcane rules and jurisdictional statutes often determine the course of global commerce, the terms of employment for millions of workers, and the very nature of justice for many in corporate America.

The 2012-13 high court session, which concluded June 26, saw the justices continue a multiyear pattern of interpreting regulations and statutes in a manner that insulates corporations from liability risks. In other words, the Supreme Court under Chief Justice John Roberts has narrowed the avenues available to employees and consumers seeking to take their grievances before a judge.

Evident in the court’s decisions is a deep-seated hostility to ambitious lawsuits aggregating the claims of hundreds or thousands of plaintiffs.

“The class action is an exception to the usual rule that litigation is conducted by and on behalf of the individual named parties only,” Justice Antonin Scalia wrote in a 5-4 ruling in March that shielded Comcast Corp (CMCSA). from a monopolization suit seeking $875 million on behalf of 2 million cable subscribers.

Photographer: Charles Dharapak-Pool

Supreme Court Justices, Chief Justice John Roberts, Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan applaud before President Barack Obama's State of the Union address during a joint session of Congress on February 12, 2103 in Washington, D.C. Close

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Photographer: Charles Dharapak-Pool

Supreme Court Justices, Chief Justice John Roberts, Anthony Kennedy, Ruth Bader Ginsburg, Stephen Breyer, Sonia Sotomayor and Elena Kagan applaud before President Barack Obama's State of the Union address during a joint session of Congress on February 12, 2103 in Washington, D.C.

Restrictive Jurisprudence

Scalia, whose tendency to toss verbal Molotov cocktails sometimes limits his ability to build majorities on the high court, has emerged as the determined architect of a strikingly restrictive class-action jurisprudence, an area the justices historically had left to the lower courts.

“This year the Supreme Court continued its trend of sticking closely to the language of the governing statutes and rules and reining in creative efforts by plaintiffs’ lawyers to bring huge class actions and to establish expansive theories of liability,” said appellate specialist Theodore Boutrous.

A partner in Los Angeles with corporate law firm Gibson, Dunn & Crutcher, Boutrous knocked down a massive gender-discrimination class action against Wal-Mart Stores Inc (WMT). in 2011. He returned this term to win another victory, this time on behalf of a unit of Travelers Cos (TRV)., which successfully blocked a procedural maneuver that plaintiffs’ lawyers use to steer class actions to friendly state courts.

Kagan’s Role

The newest justice, Elena Kagan, emerged as a spirited defender of wide-ranging litigation against large corporations.

“To a hammer, everything looks like a nail,” Kagan, a former dean of Harvard Law School appointed in 2010 by President Barack Obama, wrote in dissent from one Scalia-led majority. “And to a court bent on diminishing the usefulness of Rule 23, everything looks like a class action, ready to be dismantled.”

Kagan objected to a ruling that stopped a class action brought by merchants against American Express Co.

The case, pitting the credit card giant against a crowd of smaller businesses that used its services, illustrated that it’s an oversimplification to label the Roberts court as merely “pro-business.” It’s more precise to describe it as opposed to the sort of imaginative -- and potentially expensive -- litigation that large corporations generally resent.

In the American Express case, Scalia wrote for a five-justice conservative majority, holding that the plaintiff merchants were bound by an agreement they signed to pursue disputes individually before an arbitrator. Kagan argued that American Express used its market power to foist its credit card contract on retailers.

‘Too Darn Bad’

“If the arbitration clause is enforceable, Amex has insulated itself from antitrust liability -- even it if has in fact violated the law,” she wrote. “The monopolist gets to use its monopoly to insist on a contract effectively depriving its victims of all legal recourse. And here is the nutshell version of today’s opinion, admirably flaunted rather than camouflaged: Too darn bad.”

Although business cases often divide the court along partisan lines, some of the justices’ important commercial cases elicited unanimity. In April, the court ruled 9-0 that multinational corporations generally should not face liability in U.S. courts for alleged atrocities overseas.

The justices said that with a few possible exceptions the 1789 Alien Tort Statute, a weapon favored by human-rights advocates, doesn’t apply to conduct beyond the country’s borders. A victory for Royal Dutch Shell, which had been accused of facilitating abuses in Nigeria, the decision may also help Exxon Mobil Corp., Cisco Systems Inc (CSCO)., Chiquita Brands International Inc., Rio Tinto Group, and other companies defending against Alien Tort Statute claims.

Anemia Drugs

Corporations weren’t cheering all of the high court’s business decisions this term. A 6-3 ruling in February made it easier for shareholders to bring securities-fraud class actions. Concluding that Amgen Inc (AMGN). has to defend itself against claims that it misled investors about the safety of two anemia drugs, the majority said the plaintiffs could sue as a group without having to show upfront that misinformation propped up the company’s stock price.

The U.S. Chamber of Commerce and other business-advocacy groups had contended that class actions such as the one against Amgen are so expensive to defend against that companies end up settling frivolous suits. Countering that view, Justice Ruth Bader Ginsburg wrote for the majority that it would “waste judicial resources” to require investors to show that an alleged deception affected stock prices before a class action could go forward. Scalia, and Justices Anthony Kennedy and Clarence Thomas dissented.

Amgen responded to the high court defeat by vowing to battle on. “The issue pending before the Supreme Court was solely procedural and was not a ruling on the merits of the case,” spokeswoman Ashleigh Koss said. “Amgen will vigorously defend itself” at trial.

To contact the reporters on this story: Paul Barrett in New York at pbarrett17@bloomberg.net; Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editor responsible for this story: James Ellis at jellis27@bloomberg.net

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