This week at the Court: In Plain English

LISA TUCKER JUN 8, 2011 9:10 AM

Even if you don’t have a calendar handy, you can tell it’s June. As I posted last week, June is the Court’s “post-season”; as of the beginning of the week, there were still thirty-one merits cases outstanding, meaning that we could expect as many as ten opinions per week for each of the next few weeks.  Although the tally is unlikely to be perfectly even, the Court came out of the box swinging on Monday, issuing four opinions, including one in a heavily watched patent case. 

But let’s start with Fox v. Vice, which at least factually is perhaps the most gripping case of the week so far.  Although it has fewer than four thousand residents, the town of Vinton, Louisiana is not immune from big-city politics.  A few years ago, petitioner Ricky Fox was challenging Billy Ray Vice, the incumbent, for chief of police.  According to Fox, Vice used all kinds of “dirty tricks” to try to win the election: Vice even arranged for someone else to file a criminal complaint against Fox for using racist language.   The local prosecutor ignored the complaint, so what did Vice do?  He leaked it to the press.   Vice lost the election, but that’s not all: he was also convicted of extortion for his campaign tactics.  But Fox still wasn’t satisfied.  He sued Vice and the town in state court for both state and federal claims, including a claim that Vice had violated his civil rights by interfering with his right to seek public office.    Fox eventually backed down, admitting that his federal claims were baseless.

Which leads us to the issue in this case:  attorneys’ fees.  A federal statute allows the winning party to recoup “a reasonable attorney’s fee” in many civil-rights cases.   This includes the defendant, if the plaintiff’s actions were “frivolous, unreasonable, or without foundation.”  In an opinion by Justice Kagan, the unanimous Court observed that this rule “would be easy to apply if life were like the movies . . ., and litigation most often concludes with a dramatic verdict that leaves one party fully triumphant and the other utterly prostrate.”   Unfortunately, the Court continued, life is rarely like the movies, making the rule much harder to apply.

Why?  Because this case, like many cases, involved overlapping facts and claims, and many of the dismissed federal claims mirrored the still-standing state claims.  The Court resolved the case by holding that a defendant may only collect the attorney’s fees that he would not have had to pay but for the frivolous claim.  So when a defendant has to pay his attorney for things that the attorney did to fight both the frivolous and non-frivolous claims—such as taking a series of depositions that relate to both sets of claims – the plaintiff may not be forced to pay for all these fees. Any other approach, the Court said, would be a windfall for the defendant.  The Court provided an example: “So two defendants (call them Vice and Rice) could face identical non-frivolous allegations, but because Vice also confronted a frivolous claim, he might end up paying less than Rice to his attorneys.”

How did this case end up at the Court in the first place?  It’s the classic case of a circuit split – that is, when different federal courts of appeals interpret a federal statute differently.  The Court often mentions the “American Rule,” which generally requires that each party pay its own attorney’s fees, lose or win.  But in several instances, like this case, Congress has shifted fees onto the losing party.  However, until yesterday, the circuits were split on how and when to shift.  One court of appeals disallows any fee-shifting unless all the claims are frivolous; another would not award fees when the frivolous claim did not add testimony or expense to the trial.  In Fox, the Fifth Circuit had held that any fees relating to work on the federal issues should be shifted – which in this case would have resulted in the defendant being reimbursed for almost all of his legal costs, even though the state claims were still alive and a lot of the work done to defend Vice against the federal claims could also be used to defend against the state claims.  But now the rule on fee-shifting in cases involving both frivolous and non-frivolous claims is consistent across the country.

The next of Monday’s opinions was also in an interesting statutory interpretation case, this time involving a criminal sentencing issue.   In McNeill v. United States, the Court had the opportunity to clarify the Armed Career Criminal Act (the “ACCA”), the federal government’s version of a “three strikes” law. Under the ACCA, a defendant who is convicted for certain federal offenses can receive an additional fifteen-year sentence (over and above the sentence for his conviction) if he has three prior state convictions for violent felonies or “serious drug offenses.”  The ACCA defines a “serious drug offense” as an offense “for which a maximum term of imprisonment of ten years or more is prescribed by law.” The issue here?  Whether Clifton McNeill’s previous six drug trafficking offenses should count as “serious drug offenses” under the ACCA when he was convicted of the federal crime of possession of cocaine base with intent to distribute.  Sounds simple, right?  Just check and see whether any of the earlier convictions carried a minimum sentence of ten years or more – easy.

But of course it’s not that simple, which is why the Court decided to hear the case. The wrinkle? When McNeill was sentenced for his prior drug crimes, they would qualify as “serious drug offenses” for purposes of the ACCA because the minimum sentence for those crimes was ten years.  But by the time McNeill was sentenced under the ACCA, North Carolina had reduced the maximum sentence for his earlier crimes to thirty-eight months, which would not trigger the ACCA’s fifteen-year sentencing enhancement.  McNeill therefore argued that a sentencing court should look at what sentence he could have received if he were sentenced for his state crime today, rather than at the sentence that was in effect when he was actually sentenced.

In a unanimous opinion by Justice Thomas, the Court held that the “seriousness” determination should be made based on the sentence that the defendant could have received when he was convicted, rather than, as McNeill argued, the one that he could have received when he was sentenced under the ACCA.  According to the Court, then, all six of McNeill’s previous drug offenses qualified as serious drug offenses under the ACCA. Because the statute talks about a “previous” offense, the Court said, the potential sentence must be calculated at the time the defendant is convicted of that offense. The Court noted that if it accepted McNeill’s interpretation of the statute, state convictions could even “disappear” by the time the case got to federal court if the state legislature changed the criminal laws so that the kinds of crimes for which a defendant had been convicted didn’t easily match up with the way that the current laws defined crimes.  This “absurd result,” the Court noted, is easily avoided by its decision.

This short (nine pages) opinion does a good job of demonstrating how the Court goes about interpreting federal statutes; its first step is usually to look, plainly and simply, to the text of the statute.  Justice Thomas is especially likely to rely on text alone when possible (ignoring, for example, legislative intent or history).  What’s more, the Court likes to be consistent; therefore, when it interprets similar and adjacent sections of a statute, it tries to construe them in the same way. That’s why, for example, in McNeill the Court looked at an earlier case involving a similar provision in the ACCA; in that case, it had also held that the definition of a state crime depends on what it was at the time of the state crime conviction, not what it was at the time of subsequent federal convictions.

In yet another statutory interpretation case, the Chief Justice wrote for the Court in Board of Trustees of the Leland Stanford Junior University v. Roche Molecular Systems, Inc. The dispute in this major patent case involved the Bayh-Dole Act, a federal law concerning patent rights for inventions that were funded by the federal government. Because, historically, many of the patents under the government’s control were sitting and collecting dust on the shelves, Congress passed the Act in 1980 to give private parties the rights to use and profit from patents. Normally, contractors (the parties to whom the federal government gave the money) got an assignment (or entered into a contract to give them the benefit) of all of the patent rights from its employees who invented them. But in this case, two assignment contracts conflicted with each other, leading both Stanford and Roche to believe that they held a patent on a federally funded AIDS test invention.

The issue arose because a Stanford employee, Mark Holodniy, regularly visited biotech company Cetus (now Roche) to observe its work.   Stanford did not get an assignment of an AIDS test patent from Holodniy; rather, it only entered into a contract in which Holodniy agreed to assign the future patent rights of inventions to the university.   Cetus, however, required Holodniy to sign a Visitor’s Confidentiality Agreement, which provided that Holodniy would assign his rights in any inventions stemming from his work there.   The lower courts held that the Stanford agreement was a promise to assign the rights in the future, while the Roche agreement was an immediate assignment.

The question before the Court is probably now apparent:  who held the patent?  Stanford had a contract that promised that Holodniy would assign his rights to not-yet-invented things in the future; Cetus had a contract that said he assigned them in the present.  The Court turned to the language of the Bayh-Dole Act to decide.  But that language was even more confusing, stating that contractors could “elect to retain title to any subject invention.”

Indeed, Stanford v. Roche —though at first confusing— is a classic case of the Court’s preference for the text of a statute over policy, with a little bit of “common” (judge-made) law thrown in. In its briefs and arguments to the Court, Roche focused on the Act’s plain language, arguing that the Act did not control the relationship between the employee-inventor and the university because the university never had the patent to Holodniy’s invention and therefore could not “retain” it.   Stanford, on the other hand, concentrated on the policy behind the Act, arguing that the contractors should own the patents on behalf of the government, automatically acquiring title from the inventors.  The Federal Circuit (whose judges are often experts on patent law) held that the Bayh-Doyle Act did not override the traditional common law rule that the ownership of the patent goes first to the inventor. Because the inventor (Holodniy) assigned the patent to Roche in the present, the patent should go to Roche.

And although we have often discussed the fact that the Court often reverses the Federal Circuit, on Monday it did just the opposite, affirming the Federal Circuit’s decision for Roche by a vote of seven to two. The Court, in an opinion by the Chief Justice, rejected Stanford’s arguments and held that the Bayh-Doyle Act does not automatically give the patent title to the federal contractor; patent law from 1790 allowed the rights of an invention initially to belong to the inventor, unless there is a contract specifying otherwise. The Court then focused on the language on the Bayh-Doyle Act and found that nothing in it clearly changes this general rule. It added that if Congress had intended to make such a drastic change in the world of intellectual property, it would have done so clearly. Therefore, the Act governs only the relationship between the government and the contractor, and the Act’s language that allows the contractors to “retain” their patent rights does not give them authority to take them. As the Court said, “You cannot retain something unless you already have it.”

The result is not likely to have a major effect on research and patents, as most contractors and university will be more careful in the future than Stanford was in drafting their contracts.  Still, as some have noted in looking at the opinion, university counsel will be busy rereading all contracts with faculty members that concern federal grant money.

The Court decided one final case on Monday, Erica P. John Fund, Inc. v. Halliburton, a case about the standard for class certification in securities fraud cases.    Unlike the Wal-mart case (which I discussed a few weeks ago), the certification issue is not whether the members of the potential “class” are sufficiently alike, but whether, when plaintiffs in securities fraud cases allege that the defendants released false information or withheld significant information from the stock-trading public, they must prove that the alleged fraud directly caused a drop in stock prices.

The Erica P. John Fund, Inc. brought the class action against the oil company Halliburton Co. (of Dick Cheney fame, although he was not involved in this case), claiming that the company intentionally gave out false information about its accounting and business, then tried to “correct” the information later. The plaintiffs argued that this false information led the company’s stock first to artificially rise, or inflate, and then (after the “corrective” information), to fall and lose them money. Halliburton, in response, claimed that the decline in stock prices was caused by “unrelated negative news,” not by the false statements.

The Fifth Circuit held that for plaintiffs to be certified as a class (or bring their claim together as a group), they must prove by a heavy burden what is known as “loss causation,” or that their losses were more probably caused by the false statements than by any other information.  They would therefore have to point to exact proof that the decline in stock price “resulted directly because of the correction to a prior misleading statement” – that it wasn’t just a coincidence that happened after the statement.  The Fifth Circuit found that because the plaintiffs couldn’t show “loss causation,” the lawsuit couldn’t move forward as a class action.  Not all circuits agree that loss causation is required; the Second and Seventh Circuits have rejected such a requirement.

But the Court unanimously reversed the Fifth Circuit and held that the plaintiffs do not need to prove loss causation to be certified as a class (of course, they will have to demonstrate it if the case goes to trial, however). In cases alleging fraud on the stock market, the Court emphasized, the most important thing is that the plaintiffs must be able to show that they relied on the false information in purchasing or selling stock – a requirement that is very different from the Fifth Circuit’s requirement of direct economic loss.

This decision makes it easier for shareholders to bring cases against large companies than it would have been under the Fifth Circuit’s standard; it is therefore a result that most companies will not like (going against, as one commentator noted, the perception that the Court is unabashedly pro-business). But for the parties in the case, it is a very narrow ruling; they will now have to return to the lower court to argue over class certification before they can even bring their claims.

We are expecting more opinions on Thursday.  Still outstanding?  Opinions in the Wal-mart and violent video games cases, among about two dozen others.  Check back – I’ll be discussing any Thursday opinions here . . . in Plain English.

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