Cypen & Cypen
JULY 2, 2010
Stephen H. Cypen, Esq., Editor
The 2009-2010 term of the United States Supreme Court has just ended. Here, in reverse chronological order, are some decisions that may be of interest to readers.
1. JUSTICES EXPAND GUN RIGHTS: Two years ago, in Heller, the Court held that the Second Amendment protects the right to keep and bear arms for purpose of self-defense, and struck down a District of Columbia law that banned possession of handguns in the home. Chicago has laws effectively banning handgun possession by almost all private citizens. After Heller, residents filed a federal suit against the City, alleging that its handgun ban had left them vulnerable to criminals. They sought a declaration that the ban and several related City ordinances violated the Second and Fourteenth Amendments. Rejecting the argument that the ordinances were unconstitutional, the trial court noted that the Seventh Circuit previously had upheld constitutionality of a handgun law, that Heller had explicitly refrained from opining on whether the Second Amendment applied to the States and that the court had a duty to follow established Circuit precedent. The Seventh Circuit affirmed, relying on three 19th-century cases. On certiorari to the United States Court of Appeals for the Seventh Circuit, the U.S. Supreme Court reversed. The Bill of Rights, including the Second Amendment, originally applied only to the Federal Government, not to the States, but the constitutional Amendments adopted in the Civil War's aftermath fundamentally altered the federal system. Whether the Second Amendment right to keep and bear arms applies to the States is considered in light of the Court's precedents applying the Bill of Rights' protections to the States. The Court eventually adopted a theory of selective incorporation by which the Due Process Clause incorporates particular rights contained in the first eight Amendments. The standard is whether a particular Bill of Rights protection is fundamental to our Nation's particular scheme of ordered liberty and system of justice. The Court eventually held that almost all of the Bill of Rights' guarantees met the requirements for protection under the Due Process Clause. The Fourteenth Amendment makes the Second Amendment right to keep and bear arms fully applicable to the States. A survey of contemporaneous history demonstrates clearly that the Fourteenth Amendment's framers and ratifiers counted the right to keep and bear arms among those fundamental rights necessary to the Nation's system of ordered liberty. The right to keep and bear arms must be regarded as a substantive guarantee, not a prohibition that could be ignored as long as the States legislated in an evenhanded manner. McDonald v. City of Chicago, Illinois, Case No. 08-1521 (U.S., June 28, 2010).
2. MOST OF SARBANES-OXLEY SURVIVES CHALLENGE: The Public Company Accounting Oversight Board was created as part of a series of accounting reforms in the Sarbanes-Oxley Act of 2002. The Board is composed of five members appointed by the Securities and Exchange Commission. It was modeled on private self-regulatory organizations in the securities industry -- such as the New York Stock Exchange -- that investigate and discipline their own members subject to Commission oversight. Unlike these organizations, the Board is a Government-created entity with expansive powers to govern an entire industry. Every accounting firm that audits public companies under the securities laws must register with the Board, pay it an annual fee and comply with its rules/oversight. The Board may inspect registered firms, initiate formal investigations and issue severe sanctions in its disciplinary proceedings. The Board is part of the Government for constitutional purposes, and its members are Officers of the United States who exercise significant authority pursuant to the laws of the United States. While the SEC has oversight of the Board, it cannot remove Board members at will, but only "for good cause shown," in accordance with specified procedures. The Commissioners, in turn, cannot themselves be removed by the President except for inefficiency, neglect of duty or malfeasance in office. The Board inspected a registered firm, released a report critical of its auditing procedures and began a formal investigation. The firm sued the Board and its members, seeking, inter alia, a declaratory judgment that the Board is unconstitutional. It argued that the Sarbanes-Oxley Act contravened the separation of powers by conferring executive power on Board members without subjecting them to Presidential control. The basis for the accounting firm’s challenge was that Board members were insulated from Presidential control by two layers of tenure protection: Board members could only be removed by the Commission for good cause and the Commissioners could in turn only be removed by the President for good cause. The firm also challenged the Board's appointment as violating the Appointments Clause, which requires officers to be appointed by the President with the Senate's advice and consent, or, in case of inferior Officers, by the President alone, the Courts or Heads of Departments. The United States intervened to defend the statute. The District Court found it had jurisdiction, and granted summary judgment against the firm. The Court of Appeals affirmed, first agreeing that the District Court had jurisdiction. It then ruled that the dual restraints on Board members' removal are permissible and that Board members are inferior officers whose appointment is consistent with the Appointments Clause. On review of the appellate court’s decision, the U.S. Supreme Court affirmed in part, reversed in part and remanded. The District Court had jurisdiction over the case. The dual for-cause limitations on removal of Board members did contravene the Constitution's separation of powers. Where the Court has upheld limited restrictions on the President's removal power, only one level of protected tenure separated the President from an officer exercising executive power. Here, the Act not only protects Board members from removal except for good cause, but withdraws from the President any decision on whether that good cause exists. That decision is vested in other tenured officers -- the Commissioners -- who are not subject to the President's direct control. Because the Commission cannot remove a Board member at will, the President cannot hold the Commission fully accountable for the Board's conduct. The fact that a given law or procedure is efficient, convenient and useful in facilitating functions of government, standing alone, will not save it if it is contrary to the Constitution. Nevertheless the unconstitutional tenure provisions are severable from the remainder of the statute. Because unconstitutionality of a part of an Act does not necessarily defeat or affect validity of its remaining provisions, the normal rule is that partial invalidation is the required course. The Board's existence does not violate separation of powers, but the substantive removal restrictions imposed do. A conclusion that the removal restrictions are invalid leaves the Board removable by the Commission at will. With the tenure restrictions excised, the Act remains fully operative as a law, and nothing in the Act's text or historical context makes it evident that Congress would have preferred no Board at all to a Board whose members are removable at will. The consequence is that the Board may continue to function as before, but its members may be removed at will by the Commission. Free Enterprise Fund v. Public Company Accounting Oversight Board, Case No. 08-861 (U.S., June 28, 2010).
Separately, in Release 2010-111, U.S. Securities and Exchange Commission issued a statement applauding the determination that Sarbanes-Oxley remains fully operative as a law and not calling into question any action taken by the PCAOB since inception. Also, SEC says PCAOB’s auditing standards, as approved by the Commission, continue to apply, and audit firms are required to be registered with PCAOB, subjecting them to inspections.
3. COURT LIMITS “HONEST-SERVICES” LAW: In 2001, Enron Corporation, then the seventh highest-revenue-grossing company in America, crashed into bankruptcy. The United States Supreme Court recently considered two questions arising from prosecution of Jeffrey Skilling, longtime Enron executive, for crimes committed before the corporation’s collapse. First, did pretrial publicity and community prejudice prevent Skilling from obtaining a fair trial? Second, did the jury improperly convicted Skilling of conspiracy to commit “honest-services” wire fraud? Answering no to both questions, the Fifth Circuit affirmed Skilling’s convictions. The Supreme Court concluded, in common with the Court of Appeals, that Skilling's fair-trial argument failed; Skilling did not establish that a presumption of juror prejudice arose or that actual bias infected the jury that tried him. But, the high court disagreed with the Fifth Circuit’s honest-services ruling. In proscribing fraudulent deprivations of the intangible right of honest services, Congress intended at least to reach schemes to defraud involving bribes and kickbacks. Construing the honest-services statute to extend beyond that core meaning would encounter a vagueness shoal. Therefore the court held that the honest-services statute covers only bribery and kickback schemes. Because Skilling's alleged misconduct entailed no bribe or kickback, it does not fall within the statutory proscription. The Court thus affirmed in part and vacated in part. Because the indictment alleged three objects of the conspiracy -- honest-services wire fraud, money-or-property wire fraud and securities fraud -- Skilling's conviction is flawed. (Constitutional error occurs when a jury is instructed on alternative theories of guilt and returns a general verdict that may rest on a legally invalid theory.) This determination, however, does not necessarily require reversal of the conspiracy conviction, as errors of this variety are subject to harmless-error analysis. The Court left that dispute for resolution on remand. Skilling v. United States, Case No. 08-1394 (U.S., June 24, 2010). See also, Black v. United States, Case No. 08-876 (U.S., June 24, 2010) and Weyhrauch v. United States, Case No. 08-1196 (U.S., June 24, 2010). (The Associated Press reported that, on June 29, 2010, the Supreme Court ordered a new review of the convictions in the government corruption case against former Alabama Governor Don Siegelman and ex-HealthSouth CEO Richard Scrushy. The Court ordered the 11th U.S. Circuit Court of Appeals, which had upheld their convictions, to review the appeals in light of the decision in Skilling.)
4. DISPUTE OVER DATE PARTIES’ CBA WAS RATIFIED IS ISSUE FOR COURT, NOT ARBITRATOR: In June 2004, the local union and its parent initiated a strike against Granite Rock, employer of some of the Local's members, following expiration of the parties' collective-bargaining agreement and an impasse in their negotiations. On July 2, the parties agreed to a new CBA containing no-strike and arbitration clauses, but could not reach a separate back-to-work agreement holding local and international union members harmless for any strike-related damages. The International instructed the Local to continue striking until Granite Rock approved such hold-harmless agreement, but the company refused to do so, informing the Local that continued strike activity would violate the new CBA's no-strike clause. The International and the Local responded by announcing a company-wide strike involving numerous facilities and workers, including members of other International locals. Granite Rock sued the International and the Local, invoking federal jurisdiction under the Labor Management Relations Act of 1947, seeking strike-related damages for the unions' alleged breach of contract, and asking for an injunction against the ongoing strike because the hold-harmless dispute was an arbitrable grievance under the new CBA. The unions conceded LMRA jurisdiction, but asserted the new CBA was never validly ratified by a vote of the Local's members, and, thus, the CBA's no-strike clause did not provide a basis for Granite Rock to challenge the strike. After Granite Rock amended its complaint to add claims that the International tortiously interfered with the new CBA, the unions moved to dismiss. The District Court granted the International's motion to dismiss the tortious interference claims on the ground that LMRA supports a federal cause of action only for breach of contract. However, the court denied the Local's separate motion to send the parties dispute over the CBA’s ratification date to arbitration, ruling that a jury should decide whether ratification occurred on July 2, as Granite Rock contended, or on August 22, as the Local alleged. After the jury concluded that the CBA was ratified on July 2, the court ordered arbitration to proceed on Granite Rock's breach-of-contract claims. The Ninth Circuit Court of Appeals affirmed dismissal of the tortious interference claims, but reversed the arbitration order, holding the parties' ratification-date dispute was a matter for an arbitrator to resolve under the CBA’s arbitration clause. The Court of Appeals reasoned that the clause covered the ratification-date dispute because the clause clearly covered the related strike claims; national policy favoring arbitration required ambiguity about arbitration clause's scope to be resolved in favor of arbitrability; and, in any event, Granite Rock had implicitly consented to arbitrate the ratification-date dispute by suing under the contract. On certiorari review of the Ninth Circuit’s judgment, the U.S. Supreme Court reversed in part, affirmed in part and remanded. Because the CBA contained an arbitration clause, the Supreme Court concluded that it was a matter of judicial resolution. Next, the Court held that the Court of Appeals did not err in declining Granite Rock’s request to recognize a new federal cause of action under LMRA for the International's alleged tortious interference with the CBA. Granite Rock Co. v. International Brotherhood of Teamsters, Case No. 08-1214 (U.S., June 24, 2010).
5. SECURITIES EXCHANGE ACT AFFORDS NO CAUSE OF ACTION TO FOREIGN PLAINTIFFS SUING FOREIGN AND AMERICAN DEFENDANTS FOR MISCONDUCT IN CONNECTION WITH SECURITIES TRADED ON FOREIGN EXCHANGES: In 1998, National Australia Bank, a foreign bank whose "ordinary shares" are not traded on any exchange in the United States, purchased HomeSide Lending, a company headquartered in Florida that was in the business of servicing mortgages. In 2001, the bank had to write down the value of HomeSide's assets, causing the bank's share prices to fall. Australians who purchased the bank's shares before the write-downs, sued the bank and HomeSide in Federal District Court, alleging violations of §§10(b) and 20(a) of the Securities and Exchange Act of 1934 and SEC Rule 10b-5. They claimed that HomeSide had manipulated financial models to make the company's mortgage-servicing rights appear more valuable than they really were, and that the bank was aware of this deception. They moved to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1) and for failure to state a claim under Rule 12(b)(6). The District Court granted the former motion, finding no jurisdiction because the domestic acts were, at most, a link in a securities fraud that concluded abroad. The Second Circuit Court of Appeals affirmed. On certiorari to the Second Circuit, the U.S. Supreme Court affirmed. The Second Circuit erred in considering §10(b)'s extraterritorial reach to raise a question of subject-matter jurisdiction, thus allowing dismissal under Rule 12(b)(1). What conduct §10(b) reaches is a merits question, while subject-matter jurisdiction refers to a tribunal's power to hear a case. The District Court had jurisdiction to adjudicate the §10(b) question. However, it is unnecessary to remand in view of that error, because the same analysis justifies dismissal under Rule 12(b)(6). Section 10(b) does not provide a cause of action to foreign plaintiffs suing foreign and American defendants for misconduct in connection with securities traded on foreign exchanges. It is a longstanding principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States. When a statute gives no clear indication of an extraterritorial application, it has none. The domestic activity in this case -- Florida is where Home-Side engaged in the alleged deceptive conduct -- does not mean the Australian investors only seek domestic application of the Act. It is a rare case of prohibited extraterritorial application that lacks all contact with United States territory. The probability of incompatibility with other countries' laws is so obvious that if Congress intended such foreign application it would have addressed the subject of conflicts with foreign laws and procedures. Neither the Government nor the Australian investors provide any textual support for their proposed alternative test, which would find a violation where the fraud involves significant and material conduct in the United States. Note to Justice Scalia, author of the opinion: the lads over at BP must be laughing in their beers (or, more likely, ales) at this giant, unsolicited grant of immunity. Morrison v. National Australia Bank Ltd., Case No. 08-1191 (U.S., June 24, 2010).
6. DISCLOSURE OF REFERENDUM PETITION DOES NOT VIOLATE FIRST AMENDMENT: The Washington Constitution allows citizens to challenge state laws by referendum. To initiate a referendum, proponents must file a petition with the secretary of state that contains valid signatures of registered Washington voters equal to or exceeding four percent of the votes cast for the office of Governor in the last gubernatorial election. A valid submission requires not only a signature, but also the signer's address and county in which he is registered to vote. In May 2009, the Governor of Washington signed into law a Senate Bill that expanded rights and responsibilities of state-registered domestic partners, including same-se.x domestic partners. Thereupon Protect Marriage Washington was organized as a State Political Committee for purpose of collecting the petition signatures necessary to place on the ballot a referendum challenging the law. If the referendum made it onto the ballot, Protect Marriage Washington planned to encourage voters to reject the law. The secretary of state determined that the petition contained sufficient signatures to qualify the referendum for the ballot. A group invoked the Washington Public Records Act to obtain copies of the petition, which contained the signers' names and addresses. The petition sponsor and certain signers filed a complaint and motion for injunctive relief in Federal District Court, seeking to enjoin public release of the petition. They alleged that the PRA was unconstitutional as applied to referendum petitions and was unconstitutional as applied to the specific petition because there was a reasonable probability that the signatories will be subjected to threats, harassment and reprisals. Determining that PRA burdened core political speech, the District Court granted a preliminary injunction preventing release of signatory information. Reviewing only that issue, the Ninth Circuit of Appeals held that plaintiffs were unlikely to succeed on their claim that PRA is unconstitutional as applied to referendum petitions in general, and therefore reversed. On certiorari to the Ninth Circuit, the United States Supreme Court affirmed. The broadly-framed issue at this stage of the
7. IF PARTY CHALLENGES SPECIFICALLY ENFORCEABILITY OF PROVISION THAT ARBITRATOR WILL DETERMINE ENFORCEABILITY OF AGREEMENT, DISTRICT COURT CONSIDERS CHALLENGE; IF PARTY CHALLENGES ENFORCEABILITY OF AGREEMENT AS A WHOLE, CHALLENGE IS FOR ARBITRATOR: Jackson filed an employment-discrimination suit against Rent-A-Center, his former employer, in Federal District Court. Rent-A-Center filed a motion under the Federal Arbitration Act, to dismiss or stay the proceedings and to compel arbitration based on the arbitration agreement Jackson had signed as a condition of his employment. Jackson opposed the motion on the ground that the Agreement was unenforceable in that it was unconscionable under Nevada law. The District Court granted Rent-A-Center's motion. The Ninth Circuit Court of Appeals reversed in relevant part. On certiorari review of the Ninth Circuit’s decision, the United States Supreme Court reversed, holding that, under FAA, where an agreement to arbitrate includes an agreement that the arbitrator will determine enforceability of the agreement, if a party challenges specifically enforceability of that particular agreement, the district court considers the challenge; but if a party challenges enforceability of the agreement as a whole, the challenge is for the arbitrator. FAA places arbitration agreements on an equal footing with other contracts, and requires courts to enforce them according to their terms, except upon such grounds as exist under law or in equity for revocation of any contract. There are two types of validity challenges: one challenges specifically validity of the agreement to arbitrate and the other challenges the contract as a whole. Only the first is relevant to a court's determination of an arbitration agreement's enforceability, because an arbitration provision is severable from the remainder of the contract. But agreements to arbitrate are not unassailable. If a party challenges validity of the precise agreement to arbitrate at issue, the federal court must consider the challenge before ordering compliance with the agreement. That conclusion is no less true when the precise agreement to arbitrate is itself part of a larger arbitration agreement. Because the agreement to arbitrate enforceability (the delegation provision) is severable from remainder of the Agreement, unless Jackson challenged the delegation provision specifically it must be treated as valid and enforced. The District Court correctly concluded that Jackson challenged only validity of the contract as a whole. Rent-A-Center, West, Inc. v. Jackson, Case No. 09-497 (U.S., June 21, 2010).
8. STATUTE CRIMINALIZING DEPICTIONS OF ANIMAL CRUELTY INVALID UNDER FIRST AMENDMENT: Congress enacted 18 U. S. C. §48 to criminalize commercial creation, sale, or possession of certain depictions of animal cruelty. The statute addresses only portrayals of harmful acts, not the underlying conduct. It applies to any visual or auditory depiction in which a living animal is intentionally maimed, mutilated, tortured, wounded or killed, if that conduct violates federal or state law where the creation, sale or possession takes place. The legislative background of §48 focused primarily on "crush videos," which feature torture and killing of helpless animals, and are said to appeal to persons with a specific se.xual fetish. Stevens was indicted under §48 for selling videos depicting dogfighting. The District Court denied his motion to dismiss on the ground of §48's facial invalidity under the First Amendment, and he was convicted. The Third Circuit vacated the conviction, and declared §48 facially unconstitutional as a content-based regulation of protected speech. On certiorari to the Court of Appeals, the U.S. Supreme Court held that §48 is substantially overbroad, and therefore invalid under the First Amendment. Stevens's facial challenge succeeds under existing doctrine. In the First Amendment context, a law may be invalidated as overbroad if a substantial number of its applications are unconstitutional, judged in relation to the statute's plainly legitimate sweep. Section 48 creates a criminal prohibition of alarming breadth; the statute's definition of depiction of animal cruelty does not even require that the depicted conduct be cruel. Despite the Government's assurance that it will apply §48 to reach only "extreme" cruelty, the Court will not uphold an unconstitutional statute merely because the Government promises to use it responsibly. A limiting construction can be imposed only if the statute is readily susceptible to such construction, and such construction of §48 decides the constitutional question. The Government makes no effort to defend §48 as applied beyond crush videos and depictions of animal fighting. It argues that those particular depictions are intrinsically related to criminal conduct or are analogous to obscenity (if not themselves obscene), and that the ban on such speech would satisfy the proper level of scrutiny. The Court does not decide whether a statute limited to crush videos or other depictions of extreme animal cruelty would be constitutional. Section 48 is not so limited, but is instead substantially overbroad, and therefore invalid under the First Amendment. United States v. Stevens, Case No. 08-769 (U.S., April 20, 2010).
9. BREAK IN PRISONER’S CUSTODY ENDS PRESUMPTION OF INVOLUNTARINESS OF INCULPATORY STATEMENTS: In 2003, a police detective tried to question Shatzer, who was incarcerated at a Maryland prison pursuant to a prior conviction, about allegations that he had sexually abused his son. Shatzer invoked his Miranda right to have counsel present during interrogation, so the detective terminated the interview. Shatzer was released back into the general prison population, and the investigation was closed. Another detective reopened the investigation in 2006, and attempted to interrogate Shatzer, who was still incarcerated. Shatzer waived his Miranda rights and made inculpatory statements. The trial court refused to suppress those statements, reasoning that Edwards v. Arizona, did not apply because Shatzer had experienced a break in Miranda custody prior to the 2006 interrogation. Shatzer was convicted of se.xual child abuse. The Maryland Court of Appeals reversed, holding that mere passage of time does not end the Edwards protections, and that, assuming, arguendo, a break-in-custody exception to Edwards existed, Shatzer's release back into the general prison population did not constitute such break. On certiorari to the Maryland Court of Appeals, the U.S. Supreme Court held that because Shatzer experienced a break in Miranda custody lasting more than two weeks between the first and second attempts at interrogation, Edwards did not mandate suppression of his 2006 statements. Edwards created a presumption that once a suspect invokes the Miranda right to presence of counsel, any waiver of that right in response to a subsequent police attempt at custodial interrogation is involuntary. Here, Shatzer's release back into the general prison population constituted a break in Miranda custody. Lawful imprisonment imposed upon conviction does not create the coercive pressures produced by investigative custody that justify Edwards. When previously incarcerated suspects are released back into the general prison population, they return to their accustomed surroundings and daily routine -- they regain the degree of control they had over their lives before the attempted interrogation. Their continued detention is relatively disconnected from their prior unwillingness to cooperate in an investigation. The inherently compelling pressures of custodial interrogation ended when Shatzer returned to his normal life. Maryland v. Shatzer, Case No. 08-680 (U.S., February 24, 2010).
10. ADVICE THAT SUSPECT CAN INVOKE RIGHT TO TALK TO LAWYER AT ANY TIME SATISFIES MIRANDA: In a pathmarking decision, Miranda, the U.S. Supreme Court held that an individual must be clearly informed, prior to custodial questioning, that he has, among other rights, the right to consult with a lawyer and to have the lawyer with him during interrogation. After arresting respondent Powell, but before questioning him, Tampa Police read him their standard Miranda form, stating, inter alia: you have the right to talk to a lawyer before answering any of our questions and you have the right to use any of these rights at any time you want during this interview. Powell then admitted he owned a handgun found in a police search. He was charged with possession of a weapon by a convicted felon in violation of Florida law. The trial court denied Powell's motion to suppress his inculpatory statements, which was based on a contention that the Miranda warnings he received did not adequately convey his right to presence of an attorney during questioning. Powell was convicted of the gun-possession charge, but the intermediate Florida appellate court held that the trial court should have suppressed the statements. The Florida Supreme Court agreed, noting that both Miranda and the State Constitution require that a suspect be clearly informed of the right to have a lawyer present during questioning. The state high court believed that the advice Powell received was misleading because it suggested that he could consult with an attorney only before the police started to question him and did not convey his entitlement to counsel's presence throughout the interrogation. On certiorari to the Florida Supreme Court, the United States Supreme Court reversed. Advice that a suspect has the right to talk to a lawyer before answering any of the law enforcement officers' questions, and that he can invoke this right at any time during the interview, satisfies Miranda. Florida v. Powell, Case No. 08-1175 (U.S., February 23, 2010).
HAVE A SAFE FOURTH OF JULY HOLIDAY.
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