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By Alan B. Morrison, Lerner Family Associate Dean for Public Interest & Public Service, George Washington University Law School

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Like a brakeless train careening down a mountain, the Supreme Court delivered another blow to those seeking to avoid having their claims shunted off into arbitration when it held in Rent-a Center v. Jackson (No. 09-497, June 21, 2010) that the company's contract with its employee gave the power to the arbitrator, instead of a court, to decide when the terms of the arbitration were unconscionable. The 5-4 decision is significant in its own right (and wrongly decided as well), but that outcome is hardly surprising given the single-mindedness with which a narrow majority of the Court has pushed the Federal Arbitration Act of 1925 (FAA) into places that its authors could never have foreseen.

The FAA was passed by Congress to overcome decisions that made agreements to arbitrate unenforceable, even between two sophisticated businesses, the only ones that were seeking to use arbitration instead of the courts in those days. In recent years, the Court has embraced arbitration with a passion and upheld arbitration clauses that applied not only to contract claims, but to claims arising under federal laws of all kinds, including those barring discrimination in employment on grounds of race, gender, age, and other protected categories. Moreover, although the FAA contains an exception for contracts involving employees working "in commerce," the Court narrowly construed this exemption so that the employment agreements of workers who, under the prevailing interpretation of the Commerce Clause in 1925, could not constitutionally have been reached then, had their claims forced into arbitration so long as they, or as the Court ruled in a subsequent case, their union, "agreed" to have those claims arbitrated. The Court also rejected attempts by states to preclude arbitrations in certain situations, or impose conditions on their use, beyond those generally applicable all contracts, such as the defense of unconscionability.

The Court has also ruled that arbitrators not courts should decide the scope of what the parties agreed to arbitrate as well as the validity of any defenses to the validity of the contract, like failure of consideration or the statute of frauds. Until Rent-a-Center the rule had been that claims that arbitration clauses alone were unconscionable (and hence unenforceable) were to be decided by the courts, not arbitrators. But, in an opinion written by Justice Scalia, the employment contract in Rent-a-Center, which was given to the prospective employee on a take-it-or-leave-it basis, and contained a clause giving the arbitrator, rather than a court, the right to decide whether the part of the contract mandating arbitration was unconscionable, was upheld. The result, which the Court said was agreed to by the employee, is that the arbitrator rules on whether the terms of the arbitration agreement are fair, in which case he gets to decide the case (and get paid for doing so), or unconscionable, in which case the matter goes back to court. In Rent-a-Center, the employee was forced to arbitrate all of his claims, but the employer could go to court on the claims that it really cared about. In other agreements, the unconscionable feature is that the arbitral forum is unduly favorable to the party with the superior bargaining position, or other elements of the process are so one-sided that arbitration would not be enforced by a court. It is difficult to imagine that the Congress that specifically preserved all state-law defenses to contracts generally, as a precondition of enforceability, would have envisioned that it would be the arbitrators rather than the courts that would determine the validity of such defenses.

As everyone except perhaps the same five-person majority on the Supreme Court knows, mandatory, pre-printed arbitration clauses appear everywhere from employment contracts, to stock brokerage agreements, to purchases of computers, cell phones, and most other commercial products. In many situations, the claim will be so small and/or the case so complicated that, unless the case can be brought as a class action, no lawyer will take it, and no claimant would stand a chance against the company, whether in court or in arbitration. For a time the Supreme Court seemed open to the notion that even if a contract required arbitration, the arbitration could be done on a class basis, at least where the contract did not forbid it. But then on April 27, the Court, in an opinion written by Justice Alito, the same five-Justice majority (with Justice Sotomayor recused) held that where a contract does not authorize arbitration class actions (as most do not), a class arbitration was not permitted. Stolt-Nielsen v. AnimalFeeds International Corp. (No. 08-1198). The Court seemed to leave open the theoretical possibility that some underlying principle of law might provide a basis for class arbitration, but no sensible person would place much hope in that occurring. Thus, unless the company drafting the arbitration clause does what no company has done (or would have any incentive to do) and permits claimants to aggregate their claims in class-wide arbitrations, those claims would become effectively unenforceable. Indeed, most such agreements mandate arbitration and then specifically forbid class actions, thus closing off that theoretical possibility.

But victims of corporate overreaching have one remaining quiver in their litigation sheath: the argument that agreements that preclude class arbitrations are unconscionable as applied to claims that are viable only as class actions. A month ago the Court agreed to hear a case in which the Ninth Circuit upheld such a claim of unconscionability. AT&T Mobility Corp. v. Conception, (No. 09-893). However, unless the Court suddenly wakes up to the reality of what mandatory arbitration is doing to the rights of individuals, class actions for any claim involving a contractual relationship, even those based on federal statutory rights, will be a thing of the past.

The optimist in me says that if the Court stays true to its love affair with one on one arbitration, Congress will step and fix the problem, especially because the rights that it created when it enacted federal statutes are being systematically undermined. It could forbid enforcement of mandatory pre-dispute arbitration provisions, across-the-board, or as applied to federal statutory rights or for class actions. It could also assure that arbitrations are generally fair and that some forum - either a court or an arbitral tribunal - is available for claims that are viable only as class actions. The one thing it cannot in good conscience do is allow the Federal Arbitration Act to continue to ride roughshod over the rights of ordinary Americans.

 

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By Michael R. Masinter, Professor of Law, Shepard Broad Law Center, Nova Southeastern University

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It's difficult to overstate just how disastrous a decision the U.S. Court of Appeals for the Eleventh Circuit recently issued regarding the Americans with Disabilities Act (ADA). The Eleventh Circuit ruling dismissed a lawsuit challenging a Florida county's lack of voting machines for disabled individuals. That decision, American Association of People with Disabilities v. Harris, holds that a violation of Title Two regulations enacted pursuant to an express grant of rulemaking authority cannot be the basis for a claim asserting a violation of Title Two's various prohibitions, and does so largely by relying on Alexander v. Sandoval.

Sandoval forbade private enforcement of Title VI disparate impact regulations because Title VI of the Civil Rights Act of 1964 is spending clause legislation that SCOTUS previously had construed only to forbid intentional discrimination. Because under the Roberts and Rehnquist Courts spending clause statutes were not ordinarily privately enforceable, those that are privately enforceable must, we are told, contain within the statute the source of potential state liability to private parties given the contractual nature of liability - it arises from accepting federal funds, so states must know what comes with the money, and they know from the statute, not from regulations later enacted, what can expose them to liability by accepting that money. Since Title VI only forbade intentional discrimination, disparate impact claims relying on regulations could not be said to be claims for a violation of Title VI, and therefore the regulations, even if valid, were not privately enforceable.

Leaving aside everything that is wrong with the Court's treatment of spending clause statutes, Title Two of the ADA isn't spending clause legislation, it is legislation enacted under section five of the Fourteenth Amendment, which gives Congress express authority to impose federal law on states irrespective of whether they accept federal dollars. Congress legislates under section five as a sovereign, not as a dispenser of federal money.

Title Two directly forbids state and local governments from three forms of unlawful activity - exclusion from participation in, denial of benefits of services, activities, and programs, and discrimination, all on the basis of disability, and in section 204 Title Two explicitly authorizes the Department of Justice to enact implementing regulations that surely can, with Chevron deference, elaborate on the meaning of exclusion, denial and discrimination. Contrary to the Eleventh Circuit's opinion, the grant of regulatory power in section 204 includes, but is not limited to providing standards for facilities and vehicles. 28 C.F.R. 35.151(b) does that by elaborating on the statutory prohibition against discrimination, and so a violation of the regulation becomes a violation of the prohibition against exclusion and discrimination.

The trial judge may have used the wrong terminology by describing why the failure to provide accessible voting machines was unlawful - perhaps he should have characterized it as a violation of the prohibition against exclusion and discrimination rather than as a violation of the regulation elaborating exclusion and discrimination, see footnote 24,but the panel intended much more, and in any event footnote 24 is an odd way to acknowledge that a panel is creating circuit conflict merely to insist on ritualistic incantation of language.

The Court offers an alternative rationale when it writes that even if private enforcement were proper, defendants haven't violated Title Two's prohibitions as construed in Sec. 35.151(b) because they haven't provided inaccessible facilities in which to vote in the first place. The panel could easily have said only that, but it looks like it wanted to take a gratuitous swipe at the private enforcement of civil rights regulations enacted pursuant to section five legislation in a decision in which it could be pretty sure that, because of its alternative rationale, would escape review by the U.S. Supreme Court, even in the face of its circuit conflict.

The broad holding seems to be this: Even when Congress has lawmaking power under section five of the Fourteenth Amendment (not spending clause contractual power but substantive legislative authority), enacts legislation that expressly authorizes private suits for violations, delegates express rulemaking authority to the Department of Justice as it routinely does when it empowers an agency to make rules with the force of law entitled to Chevron deference, the result is that only the DOJ can enforce the rules. Until now, I had thought Sandoval was part of the war against private enforcement of spending clause legislation, but in the Eleventh Circuit, it's much more.

So where does this decision lead? Are section 504 and Title IX private suits against governmental (or perhaps all) defendants now off the table in the Eleventh Circuit if they rely on a violation of a regulation to establish unlawful discrimination? How about Fair Housing Act claims?

All this in a decision in which the court bypassed a defense claim of mootness to decide the merits on the broadest possible ground. Talk about judicial activism.

 

The massive oil spill in the Gulf of Mexico, which has reportedly reached the coast, is threatening fisheries and fragile ecosystems, and spurring litigation.

A group of Louisiana fisherman, shrimpers and commercial boaters filed suit against BP, the oil company renting the offshore drilling rig that continues to spill oil into the Gulf after a deadly explosion. According to an attorney involved in the suit, Daniel Becnel Jr., people from all five states lining the Gulf Coast have voiced interest in joining the expanding class action.

Coast Guard officials estimate that the now-sunken rig is continuing to leak 5,000 barrels of oil daily -- five times the initial estimate. There is no indication that the well will be sealed any time soon.

The spill provoked significant responses from federal and state officials. Louisiana Gov. Bobby Jindal declared a state of emergency. Homeland Security Secretary Janet Napolitano called the incident "a spill of national signifigance," and created two command posts in Alabama and Louisiana to monitor the federal response. Interior Secretary Ken Salazar launched an immediate review, including on-site inspections of 30 offshore drilling rigs and 47 production platforms operating in the Gulf. The U.S. Navy and Air Force are also included in managing the spill, lending scores of vessels and aircraft to an operation already involving over 1,000 people.

At The Washington Independent, Mike Lillis reports on the White House's response:

Today, as the oil from an enormous spill in the Gulf of Mexico creeps toward the shores of the southern U.S., the administration is having its doubts about the new policy. David Axelrod, senior adviser to Obama, told "Good Morning America" today that there's a moratorium on the expansion until the recent spill can be controlled and investigated.

"No additional drilling has been authorized and none will until we find out what happened here," he said.

For the White House, the timing of the spill couldn't have been worse. If Obama had stuck with his guns in opposing new drilling, he'd be seen as a prophet in the wake of this week's Gulf disaster. Instead, by trying to make concessions to Republicans - most of whom won't support a climate bill in any event - he's simply alienated his conservation-minded supporters on the left. Sierra Club Executive Director Michael Brune makes the case.

"This disaster changes everything," Brune said today in a statement. "We have hit rock-bottom in our fossil fuel addiction. This tragedy should be a wake up call. It's time to take offshore drilling off the table for good."

[Image via NASA Goddard Photo and Video.]

More than a year after oral argument, a narrowly divided federal appeals court affirmed certification of the largest class action in American history. In Dukes v. Wal-Mart, more than one million potential plaintiffs are suing the retailer for gender discrimination. 

"The lawsuit, brought in 2001, accuses the retailer of systematically paying women less than men, giving them smaller raises and offering women fewer opportunities for promotion," The New York Times reports. "The plaintiffs stressed that while 65 percent of Wal-Mart's hourly employees were women, only 33 percent of the company's managers were." 

Considering the case en banc, the U.S. Court of Appeals for the Ninth Circuit sided with the plaintiffs by a vote of 6-5. Casting the deciding vote was Clinton appointee Judge Susan Graber, who wrote in concurrence, "If the employer had 500 female employees, I doubt that any of my colleagues would question the certification of such a class. Certification does not become an abuse of discretion merely because the class has 500,000 members."

The Recorder reports: 

Judge Michael Daly Hawkins wrote Monday's majority 9th Circuit opinion, joined by Graber and Judges Stephen Reinhardt, Raymond Fisher, Richard Paez and Marsha Berzon. All were appointed by Democrats.

"It would be better to handle some parts of this case as a class action instead of clogging the federal courts with innumerable individual suits litigating the same issues repeatedly," Hawkins wrote in Dukes v. Wal-Mart, 04-16688.

Judge Sandra Ikuta dissented, joined by Chief Judge Alex Kozinski and Judges Pamela Rymer, Barry Silverman and Carlos Bea. All of them are Republican appointees except for Silverman, a moderate Clinton pick much like Graber.

Wal-Mart is expected to appeal the decision to the Supreme Court. Considering some observers' assessments of the Roberts Court as hostile to justice accessibility, plaintiffs' victory this week remains far from final.

[Image via Dystopos.] 

A recent ACS panel discussion focused on a string of Supreme Court cases that some court observers and lawmakers say limit individual and class action lawsuits. The event, "Access to Justice in Federal Courts," included a keynote address from the ACLU's Anthony Romero and two panel discussions moderated by New York University School of Law Professor Arthur R. Miller.

The first panel discussion focused on the recent Supreme Court decisions, Ashcroft v. Iqbal and Bell Atlantic v. Twombly, which have given federal district court judges greater discretion to quickly dismiss lawsuits. Those decisions have sparked concern among civil rights groups and spurred lawmakers to push legislation that would remove strictures on access to the courts.

During the panel discussion on Iqbal and Twombly, Alexander A. Reiner, Benjamin N. Cardozo School of Law professor and counsel to Javaid Iqbal before the U.S. Supreme Court, said those decisions have given courts the ability to "get rid of cases they don't like." He added that civil rights cases, in particular, have been hindered by those decisions.

The panel on class action litigation, also focused on recent Supreme Court decisions that have created restrictions and other limitations on class actions. Elizabeth J. Cabraser, a partner at Lieff Cabraser Heimann & Bernstein, LLP noted an activist bent of the current Supreme Court. "We have a court with a frequent majority that claims not to be in the business of judicial activism or making new law," Cabraser said. "But we have new law after new law after new law cooked up in the Supreme Court. It is a radical court."

Video of the Romero's keynote address and both panel discussions are available here or by clicking picture below.

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By Thomas O. McGarity, Joe R. and Teresa Lozano Long Endowed Chair in Administrative Law, University of Texas at Austin & Member Scholar, Center for Progressive Reform

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The citizens of Minot, North Dakota suffered a grave injustice on January 18, 2002 when a train derailment bathed much of that small town in a toxic cloud of poisonous gas that killed one person and injured almost 1,500 others. A detailed investigation by the National Transportation Safety Board concluded that the derailment was most likely caused by fractures in temporary joints that the railroad had installed to repair the track.

When the victims sued the railroad for damages caused by its negligent maintenance, they found the courthouse doors locked. A federal district court held that their claims were preempted by the Federal Railroad Safety Act (FRSA) of 1970, which contained a "preemption" clause that Congress enacted to prevent states and localities from enacting regulations that were inconsistent with the regulations issued by the Federal Railroad Administration (FRA), the federal agency that Congress created to protect citizens from irresponsible railroads.

The court held that because Congress empowered the FRA to regulate railroad safety, injured citizens could not sue the railroads when they operated their trains unsafely -- whether or not they complied with FRA requirements. Other courts have issued similar decisions in cases involving train collisions, derailments and grade-crossing accidents.

During the Bush Administration, the FRA aggressively asserted its newfound power to protect railroads by preempting state common law. A new white paper issued by the Center for Progressive Reform (which I co-authored) explores the injustice inherent in this interpretation of the statute.

Proponents of preemption argue that the FRA is fully capable of protecting U.S. citizens without the help of juries applying vague common law standards to reach potentially inconsistent results in 50 different jurisdictions. The citizens of Minot know that's not true.

The 400 inspectors working for the Federal Railroad Administration are responsible for 1.2 million rail cars operating on nearly 300,000 miles of track. In 2003, the FRA fully investigated only four of the nearly 3,000 grade-crossing accidents that occurred and imposed fines for only about 2 percent of the violations it discovered. The agency's solution to its resource problem is to rely heavily upon the railroads themselves to inspect rolling stock and track for compliance with FRA safety regulations. That puts the fox firmly in charge of the henhouse, with predictable results.

The CPR report documents how the FRA has long been thoroughly "captured" by the industry it is supposed to be regulating. High-level agency officials and industry lawyers and executives move seamlessly through the agency's rapidly revolving door.

The notion that common law is unnecessary because the FRA does such a splendid job of guarding public safety is thus a cruel joke. The victims of irresponsible railroad behavior and their families have suffered in silence. And those of us who live near railroads or frequently encounter railroad crossings are at the mercy of railroad companies that know full-well that they are unlikely to be called to account by a resource-starved federal agency.

Congress reacted to this obvious injustice in 2007 by adding a proviso to the preemption section of the FRSA stating that it did not block citizens seeking damages in cases where the plaintiff alleged that the railroad had failed to comply with a federal standard, one of its own rules, or valid state law. This specific injunction should have sent a message to the FRA and the federal courts that they were to get out of the business of preempting state common law claims when the railroad violated valid state or federal requirements or one of its own safety regulations. Yet, an FRA regulation, issued in April 2008, stated that the amendment merely established "rare" exceptions to the general rule that state common law claims were preempted.

And in the early months of the Obama administration, when the president had not yet appointed the agency's new leaders, FRA continued to write broad preemption language in the preambles to its rules. Several lower court decisions have likewise narrowly limited the amendment and have continued to hold that valid common law claims are preempted. Last May, President Obama issued a memorandum to the agencies instructing them to preempt state common law only when they have a legal basis for doing so and only when the preemption satisfies the requirements of Executive Order 13132, which expresses a policy of respect for the authority of the state agencies and courts to regulate and adjudicate.

The FRA should heed the president's orders. And it should send a message to the courts by recanting previous preemption statements, repealing language in existing regulations preempting state common law claims, including provisions in future rules preserving state common law claims, and sending amicus briefs -- vigorously defending the right of plaintiffs to sue irresponsible railroads -- to courts that are asked to dismiss cases on preemption grounds. Our safety deserves no less.

[Image via Wade From Oklahoma.]

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By Lee Harris, professor of corporate law at the University of Memphis and author, most recently, of Mastering Corporations and Other Business Entities.

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Goldman Sachs, the former bailed out investment bank, wastes too much of the corporate wad on lavish compensation arrangements. Notably, for instance, the company recently announced that it was setting aside $16.7 billion for employee compensation. That's around $700,000 per employee. Really.

At a time when the economy is contracting and job losses expanding, such numbers have observers miffed. At least one pension fund, The Security Police and Fire Professionals of American Retirement Fund, which had invested in Goldman, has hired a lawyer and filed suit to try to put a stop the payout.

Fortunately, such suits raise the issues and send a message to leaders of public companies. But, unfortunately, there's little these shareholders or anyone can actually do to stop the Goldman-like bonanzas.

As it turns out, pay for performance at many U.S. firms is frequently anything but. Often executives at companies receive lavish incomes for average production. Worse, some get fortunes, even though their performance has been subpar. And, worse still, sometimes executives receive sheer windfalls, even while their performance has been awful.

In fact, the Goldman payout isn't the first time high executive compensation has raised shareholder ire.

One of the most egregious examples of this occurred thirteen years ago, when Disney agreed to pay Michael Ovitz, their poor performing company president $140 million dollars in severance package. And, the Disney board and CEO agreed to the payout, after Ovitz had performed just over a year's worth of work!

One of the well known reasons large payouts occur is because of the rampant conflicts of interests that are inherent in many executive compensation decisions. For instance, the CEO plays an important role in selecting the members of the board of directors, which, upon selection, entitles the appointees to very lucrative director fees, stock, and stock options. The CEO's salary, in turn, is determined, by whom-of course, those very directors who owe their appointment in part to the CEO.

Compensation consultants are brought in to figure whether compensation packages are at market rates. For instance, Disney had a compensation consultant to advise them on how to structure Ovitz's pay at the company.

But, the compensation consultants are appointed by whom-the very executives and directors for whom they will offer an opinion. If the compensation consultants want future work or, for that matter, board members want to stay in the CEO's good graces, then there are fairly predictable incentives to come back with a very high executive pay numbers.

Sometimes, as mentioned, stakeholders in US firms-shareholders and the public-fight back. Congress amended the tax code to take away the deductibility that companies who make large salaries receive. And shareholders, incensed by outsized pay arrangements, brought suit against Disney. The Disney shareholders argued to courts in Delaware, where Disney was incorporated, that the directors were uninformed-which they were-the severance was unconscionably large-which it was-and that Mr. Ovtiz was unqualified-which arguably he might have been.

However, it still remains very much a tough path, fraught with difficulties to try to beat back decisions to take on companies, like Disney, Goldman, or others. Firms can game and restructure compensation arrangements to avoid new changes to the tax code, as they have done with respect to the deductibility provisions.

And, with respect to a courtroom challenge, judges have been loath to hear shareholders out. There are well-known legal tropes that stop courts from intervening in such decision-making. The importance of "centralized management", the need to avoid "courtroom second-guessing" and so forth mean that courts are inclined to leave levels of compensation up to the directors of firms. It means plaintiffs in cases like Disney's have little legal standing to launch a suit and it means that, even if they take such suits to verdict, they too often lose.

As a consequence, plaintiffs, like the latest group that has decided to take on Goldman, are swimming upstream and fighting the good fight. Hopefully, this time the plaintiffs will fare better.

[Image via say.fromage.]

The New York Times today notes "a lamentable" Supreme Court decision that makes it much more difficult for "Americans to assert their legal rights in court."

The Times' editorial refers primarily to the high court's ruling in Ashcroft v. Iqbal, which gives judges greater discretion to dismiss lawsuits. As the editorial board notes, traditionally civil procedural rules called for plaintiffs to file short statements outlining claims and legal grounds.

The editorial states:

The Iqbal ruling, which followed a similar 2007 ruling applying to antitrust claims, abandoned that approach. Under the court's new regimen, judges must assess the ‘plausibility' of the facts of an allegation before allowing the plaintiff to begin collecting evidence. That gives judges excessive latitude to bury cases based on their subjective views before the evidence emerges and can be fairly weighed.

That appears to be happening already. In a recent article for The National Law Journal, Tony Mauro reports that motions to dismiss based on Iqbal "have become commonplace in federal courts, already producing more than 1.500 district court and 100 appellate court decisions according to a Westlaw search."

The Times does note that lawmakers, such as Rep. Jerrold Nadler and Sen. Arlen Specter are pushing legislation that would return civil procedural rules to pre-Iqbal status. "It is the responsibility of Congress to reopen the courthouse doors," the editorial states.

Next month, ACS will host an event examining access to federal courts, which will include a panel discussion devoted to the recent cases that have stiffened the pleading standards. Professor Arthur R. Miller of NYU Law School will moderate that panel discussion, which will include Steven E. Fineman, Brad N. Friedman, Faith E. Gay, Barbara J. Hart, Richard T. Joffe, Andrew J. Pincus, Alexander A. Reinert, Teresa Wynn Roseborough and Vincent Warren. Executive Director of the ACLU Anthony D. Romero will provide the keynote address for the Jan. 21, 2010 event called, "Access to Justice in Federal Courts." See here for more information about the event. 

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By Martin Magnusson, an associate at Day Pitney LLP.

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The False Claims Act allows private citizens to prosecute fraud on behalf of the federal government. It dates back to the 1860s, when Congress passed the act to address fraud on the part of government contractors who supplied the Union Army during the Civil War.

Liability under the False Claims Act is robust: Damages are trebled, civil penalties are assessed for each violation, and the whistleblower can recover his or her attorney's fees. Because the whistleblower also shares 15 to 30 percent of the government's recovery, the False Claims Act is a powerful incentive for whistleblowers to step forward with inside information about fraud and abuse in government contracts. The financial incentives that underlie the False Claims Act, though, are generally reserved for whistleblowers with nonpublic information about fraud in government contracts. The so-called "public-disclosure bar" prevents non-whistleblower plaintiffs from bringing opportunistic suits based on information that is already public knowledge.

But the exact parameters of the public-disclosure bar are unclear and have divided federal courts. This term, the United States Supreme Court will resolve this issue in Graham County Soil & Water Conservation District v. United States ex rel. Wilson.

In that case, Karen Wilson, a former secretary for the Graham County Soil & Water Conservation District, alleged that four men, including a water district employee, conspired to rig contract bids to divide federal funds between themselves. The water district, though, argued that because the facts underlying Ms. Wilson's lawsuit were contained in administrative documents, the public-disclosure bar deprived the court of jurisdiction over the matter. The U.S. Court of Appeals for the Fourth Circuit rejected this argument, concluding that the False Claims Act's public-disclosure bar only applies only to federal documents and hearings.

The question that the Supreme Court will resolve in Wilson is whether federal courts have jurisdiction over False Claims Act suits that are based on revelations in administrative reports or audits issued by state or local governments, as opposed to the federal government. This issue has divided federal courts: While the U.S. Court of Appeals for the Ninth Circuit has held that state administrative audits and reports constitute public disclosures, the U.S. Courts of Appeals for the Third and Fourth Circuits have held that they do not.

In its Supreme Court brief, the water district contends that the Fourth Circuit's construction of the public-disclosure bar will foster opportunistic litigation:

Under the Fourth Circuit's holding, a plaintiff may freely base his or her [False Claims Act] action on a report that is readily available to the public through a state or local government agency. A plaintiff can obtain these reports with virtually no effort by simply searching the Internet or serving a state [Freedom of Information Act] request.

[A] cottage industry will develop in which plaintiffs' attorneys will scour local government reports in hopes of finding self-reporting by counties and cities of errors relating to the expenditure of federal funds.

And the water district contends that this will ultimately undercut the Government's ability to recover funds lost to fraud and abuse:

[A] plaintiff may simply copy a state administrative report verbatim into a complaint, file a [False Claims Act] action and then demand a bounty even though the plaintiff added nothing to an ongoing investigation. Such a result siphons off the recovery that the United States would otherwise be entitled to receive.

In contrast, Ms. Wilson's Supreme Court brief contends that adopting the water district's argument would hamstring the False Claims Act:

[The water district's] construction would have the troubling consequence of permitting a local government, when it is both the source of the purported disclosure and a potential defendant in a [False Claims Act] action, to create practical immunity under the [False Claims Act]. [The water district's] construction would ... expand[], rather than reduc[e], the jurisdictional bar, and thereby reduce, rather than increase the number of [False Claims Act] suits.

Ms. Wilson argues that potential False Claims Act defendants will thus be able to forestall litigation simply by making limited public disclosures:

[A potential False Claims Act defendant] would only have to go to the minimal effort of issuing a self-serving investigative report; and making a very limited publication of that report, perhaps as a handout at one of its public meetings. After its initial distribution of copies to a few members of the public, then it could be filed away. If this were to occur, the federal government might never learn of its existence, yet, the fraudulent local government would then be immune from a [False Claims Act] suit .... This is a true moral hazard of [the water district's] position - it creates the incentive for such white-washing "internal investigations" to become standard operating procedure for local governments under the guise of litigation avoidance.

The Supreme Court will hear oral arguments in Wilson on November 30.

[Image via Mari Quite-Contrary.]

With courts seeming to trend towards raising the bar for plaintiffs seeking their day in court, a recent decision by the historically conservative U.S. Court of Appeals for the Fifth Circuit stands out. Hurricane Katrina victims suing an oil company and other alleged polluters were validated today, as a three-judge panel of the Fifth Circuit determined that they have standing to sue those who have contributed to climate change.

In its opinion, the Fifth Circuit wrote that it "accepted as plausible the link between man-made greenhouse gas emissions and global warming." The court relied on the landmark Second Circuit opinion in Connecticut v. AEP reinstating federal public nuisance claims of several states against a number of carbon dioxide emitters. 

The defense argued that issues involving climate change's impact are best left "wholly and indivisibly" to the political branches. The court replied, "The defendants have failed to show how any of the issues inherent in the plaintiffs' nuisance, trespass, and negligence claims have been committed by the Constitution or federal laws 'wholly and indivisibly' to a federal political branch."