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.

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.]

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. 

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."

Can a judge award plaintiffs' attorneys an extra 75 percent in fees against a state that has failed to properly serve thousands of foster children? The Supreme Court heard oral argument in just such a case yesterday in Perdue v. Kenny A.

Dahlia Lithwick explains the case history at Slate:

In 2002, a suit was filed in Georgia on behalf of the 3,000 abused and neglected children in the foster-care system. The issues were resolved through mediation and a consent decree, with the plaintiffs winning on everything they'd asked for, save for their attorney's fees, which remained in dispute. The district court judge found a base-line-or what's known as a "lodestar"-fee of $6 million, which he then adjusted up to $10.5 million dollars. He said that in his 27 years on the bench, he had never seen more brilliant lawyering. The 11th Circuit Court of Appeals upheld the hefty increase. The state of Georgia appealed.

According to The Washington Post's Robert Barnes, "the reaction of the justices seemed to divide into ideological camps."

Justice Sonia Sotomayor seemed inclined to side with the plaintiffs, asking during oral argument, "If the market doesn't give them attorneys to start with, because there are so many risks involved in this process, and it sets a reduced fee because of those risks, how do you attract competent counsel?"

Chief Justice John Roberts provided another perspective on his famous analogy of judges as umpires, telling former Solicitor General Paul Clement, counsel for the plaintiffs, "Maybe we have a different perspective. You think the lawyers are responsible for a good result, and I think the judges are."

In a recent decision, Judge Richard Posner of the U.S. Court of Appeals for the Seventh Circuit offered thoughts on the reach of Supreme Court rulings on standards for filing civil lawsuits. The high court has issued recent rulings, Bell Atlantic Corp. v. Twombly and Ashcroft v. Iqbal, which according to some makes it much easier for judges to quickly dismiss civil lawsuits. In its 2009 decision in Iqbal, the Supreme Court said judges must draw on their "judicial experience and common sense" when deciding whether a plaintiff's complaint advances a plausible claim for relief. Justice Ruth Bader Ginsburg, who dissented in the case, later said that the majority opinion "messed up the federal rules" on civil litigation.

In a case before the Seventh Circuit, Judge Posner included dicta (language not pertinent to the holding) that Twombly and Iqbal may be limited, only applying to complex or potentially expensive litigation.

Posner wrote:

In our initial thinking about the case, however, we were reluctant to endorse the district court's citation of the Supreme Court's decision in Bell Atlantic v. Twombly, 550 U.S. 544 (2007), fast becoming the citation du jour in Rule 12(b)(6) cases, as authority for the dismissal of this suit. The Court held that in complex litigation (the case itself was an antitrust suit) the defendant is not to be put to the cost of pretrial discovery - a cost that in complex litigation can be so steep as to coerce a settlement on terms favorable to the plaintiff even when his claim is very weak - unless the complaint says enough about the case to permit an inference that it may well have real merit. The present case, however, is not complex.

But Bell Atlantic was extended, a week after we heard oral argument in the present case, in Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009) - over the dissent of Justice Souter, the author of the majority opinion in Bell Atlantic - to all cases, even a case (Iqbal itself) in which the court of appeals had ‘promise[d] petitioners minimally intrusive discovery.' Yet Iqbal is special in its own way, because the defendants had pleaded a defense of official immunity and the Court said the promise of minimally intrusive discovery ‘provides especially cold comfort in this pleading context, where we are impelled to give real content to the concept of qualified immunity for high-level officials who must be neither deterred nor detracted from vigorous performance of their duties.

So maybe neither Bell Atlantic nor Iqbal governs here. It doesn't matter. It is apparent from the complaint and the plaintiff's arguments, without reference to anything else, that his case has no merit.

Recently Sen. Arlen Specter introduced legislation to trump the high court's rulings in Twombly and Iqbal by requiring federal courts to follow traditional civil procedural rules on filing lawsuits.