October 12, 2023
Volume 31, Issue 1
This Report summarizes cases granted review on September 29, 2023 (Part I).
Part I: Cases Granted Review
Moody v. NetChoice, LLC, 22-277. A Florida law targets censorship on major social media platforms like Facebook, YouTube, and X (formerly known as Twitter) by regulating the platforms’ moderation of user-generated content. The Court granted certiorari limited to questions presented by the United States as amicus curiae—whether two parts of the law comply with the First Amendment. The rules at issue (1) restrict platforms’ choices about what content is permissible and how the content is prioritized for viewers; and (2) require platforms to explain their moderation decisions to affected users. Specifically, the Florida law restricts the platforms from moderating the content of journalists and candidates for public office, including a prohibition on “deplatforming” (banning) candidates from posting content. It also requires platforms to apply content moderation “in a consistent manner,” to not change terms of service more than once every 30 days, and to allow users to opt out of the platforms’ post organization and view posts in sequential order. If a user’s post is removed or altered, the platform must tell the user in detail why the action was taken and how the platform learned of the post. Trade associations representing the social media platforms sued Florida officials to block the law before it could be enforced. A district court preliminarily enjoined enforcement. The Eleventh Circuit affirmed the preliminary injunction in relevant part. 34 F.4th 1196.
The Eleventh Circuit concluded that these provisions likely violate the First Amendment. The Eleventh Circuit decided that the platforms’ exercise of editorial judgment in moderating users’ content is speech protected by the First Amendment, and that they are not common carriers because they make editorial decisions about what speech to host. The court applied heightened scrutiny to the rules and held that the content-moderation rules violated the First Amendment because they did not further any substantial or compelling governmental interest. The court decided that the notice rule was likely unconstitutional, too, because providing notice and a detailed justification for each action is “substantially likely” to chill the platforms’ exercise of editorial judgment, given the sheer volume of the platforms’ content-moderation activities.
Petitioners, the Florida officials, argue that the First Amendment does not apply because requiring the platforms to host certain types of content is conduct, not speech. Florida’s content-moderation rules, they explain, permit platforms to say whatever they would like; the platforms merely cannot remove protected third-party speech. Petitioners also note that the rules are not based on the content of the message but instead require the platforms to host all candidates and journalists and to treat all other speakers consistently. In addition, they argue that Florida should be able to regulate the platforms as common carriers—and in so doing, require them to openly accept users based on “clear historical precedent for regulating . . . communications networks in a similar manner as traditional common carriers.” Even if the First Amendment does apply, they contend that there is a substantial government interest in “ensuring that the public has access to a multiplicity of information sources,” and “a consumer-protection interest in ensuring that platforms moderate in conformity with their disclosed terms.” Lastly, they argue that the required notice for content removal is not overly burdensome because the platforms already voluntarily provide notice.
NetChoice, LLC v. Paxton, 22-255. Like in Moody, the questions presented are whether a state law, here Texas’s, regulating major social media platforms’ content moderation and notice to users complies with the First Amendment. Texas’s law prohibits platforms from engaging in content moderation based on viewpoint or a user’s location in Texas. If a user’s post is removed, the platform must tell the user why and allow the user to appeal the decision for further review by the platform. The district court entered a preliminary injunction, but a divided panel of the Fifth Circuit reversed. 49 F.4th 439.
Unlike the Eleventh Circuit in Moody, the Fifth Circuit held that the platforms’ content-moderation activities are not speech within the meaning of the First Amendment. Instead, the Fifth Circuit decided that the platforms’ content moderation was private censorship that states may freely regulate without implicating the First Amendment. In part, the Fifth Circuit relied on the fact that the platforms do not accept reputational and legal responsibility for the content they edit. The court also observed that when an entity disseminates others’ speech that “should weaken, not strengthen the [entity’s] argument that it has a First Amendment right to censor that speech.” In the alternative, the Fifth Circuit decided that the Texas law passes intermediate scrutiny. The court acknowledged that the notice-and-appeal process could pose substantial burdens but ultimately decided that the trade associations had not established that the provisions were facially invalid.
Petitioners, the trade associations, and the United States as amicus curiae argue that the Court has repeatedly held that the First Amendment covers curated compilations of speech generated by others that are similar to social media companies. They explain that exercising editorial discretion about which content will be displayed and how is an inherently expressive decision—quite aside from whether the platforms adopt the content as their own or assume legal or reputational responsibility for it. Petitioners contend that at least intermediate scrutiny should apply because the Texas law is viewpoint- and speaker-based, particularly given drafters’ statements that the law is meant to counteract an anti-conservative bias. Petitioners and the federal government argue that the law does not survive this scrutiny because there is “no substantial government interest in enabling users” to “say whatever they want on privately owned platforms that would prefer to remove their posts” or in enhancing “the relative voices of others” to level the playing field. Lastly, petitioners and federal government argue that the notice imposes heavy burdens because the sheer volume of removed content makes it impracticable for platforms to comply with an individualized notice mandate beyond the simplified notice they already voluntarily provide.
Smith v. Arizona, 22-899: The issue presented is “[w]hether the Confrontation Clause of the Sixth Amendment permits the prosecution in a criminal trial to present testimony by a substitute expert conveying the testimonial statements of a nontestifying analyst, on the grounds that (a) the testifying expert offers some independent opinion and the analyst’s statements are offered not for their truth but to explain the expert’s opinion, and (b) the defendant did not independently seek to subpoena the analyst.” Police executed a search warrant at the home of petitioner Jason Smith’s father and found several pounds of marijuana, drug paraphernalia, methamphetamine, and cannabis wax in a shed he was occupying. A forensic scientist tested the contraband and found the items were usable quantities of marijuana, methamphetamine, and cannabis. Before Smith’s trial on various drug charges, a different forensic scientist from the same lab reviewed all of the testing analyst’s intake records, testing methods, testing results, and instruments and chemicals used. At trial, the testifying analyst (the different forensic scientist from the same lab) explained the lab’s testing process to identify marijuana, methamphetamine, and cannabis and then provided his own independent opinions based on the scientific analysis conducted and the lab’s policies and procedures. The jury convicted Smith. On appeal, Smith argued that the analyst’s testimony violated his right to confront the witnesses against him because the analyst relied on data generated by the nontestifying analyst. The Arizona Court of Appeals denied Smith’s claim based on Arizona precedent interpreting the plurality opinion in Williams v. Illinois, 567 U.S. 50 (2012).
In Williams, the plurality found that the Confrontation Clause permitted the testifying expert to use the findings of another expert in reaching his conclusion because the out-of-court statements were not offered for their truth but rather to explain the opinion. The plurality also noted that defendants would not be prejudiced when the state does not call every analyst involved in the testing process because those analysts may be “subpoenaed by the defense and questioned at trial.” Justice Thomas concurred with the plurality’s conclusion that there was no Confrontation Clause violation, but on a different ground. He found the statements at issue “lacked the requisite ‘formality and solemnity’ to be considered ‘testimonial’ for purposes of the Confrontation Clause.” Four justices dissented, maintaining that the statements underlying the expert’s opinion were necessarily offered for their truth, and the expert witness could not convey what testing processes the analysts employed.
In State ex rel. Montgomery v. Karp, 336 P.3d 753 (Ariz. Ct. App. 2014), the Arizona Court of Appeals, relying on the plurality in Williams, held that the defendant’s confrontation rights were not violated when a testifying criminalist formed an independent opinion about the defendant’s blood alcohol concentration based on her review of a nontestifying criminalist’s notes and reports. Similarly, in Smith’s case the Arizona Court of Appeals found the analyst was not a “mere conduit” of the nontestifying analyst’s opinion or analysis because he presented his independent expert opinion based on his review of the nontestifying analyst’s work, and he was subjected to cross-examination at trial. When the expert provided his independent opinion at trial, he was the witness whom Smith had the right to confront. Had Smith wanted to challenge the nontestifying analyst’s work, the court noted, Smith could have called her as a witness, but he chose not to do so. Because Smith confronted the analyst, and the nontestifying analyst’s opinions were not admitted, the court held that no Confrontation Clause violation occurred.
Smith argues that state and federal courts are deeply divided over the 4-1-4 decision in Williams. He asks the Court to address the viability of the plurality’s rationale and to confirm that defendants do not bear the responsibility of subpoenaing nontestifying analysts for trial. In particular, Smith argues that his case reflects the problem with the plurality’s rationale. As he contends, the testifying analyst’s opinion was not independent, and his confrontation rights were violated when the analyst conveyed testimonial statements from the nontestifying analyst’s report. He notes that five Justices in Williams rejected the proposition that an independent analyst’s testimony in a case such as this is not offered for its truth.
Devillier v. Texas, 22-913. The question presented is whether the Fifth Amendment’s Takings Clause is self-executing and provides mandatory compensatory relief without a statutory authorization to bring suit. During a highway project to prevent flooding, Texas erected a traffic barrier to prevent excess water from reaching the south side of Interstate Highway 10, added two lanes of traffic, and raised the highway’s elevation. The barrier acted as a weir and prevented water from leaving the north side of the highway. Petitioner Richard Devillier and 76 other property owners own land on the north side of the highway that flooded after Hurricane Harvey and Tropical Storm Imelda, resulting in real and personal property damage. Devillier filed suit, raising an inverse-condemnation claim in state court under the Takings Clauses of the U.S. and Texas Constitutions. Texas removed the case to federal court and filed a motion to dismiss, arguing that Devillier could not sue directly under the Fifth Amendment. Rather, he could only sue under 42 U.S.C. §1983, and under that statute Texas is not a “person” that can be sued. The district court denied the motion. Citing First English Evangelical Lutheran Church v. County of Los Angeles, 482 U.S. 304, 315 (1987), it reasoned that the Takings Clause expressly provides a remedy thereby creating “a substantive right to just compensation that springs to life when the government takes private property.” The Fifth Circuit reversed and remanded. In a single sentence, it stated “[w]e hold that the Fifth Amendment’s Takings Clause as applied to the states through the Fourteenth Amendment does not provide a right of action for takings claims against a state.”
Devillier argues that the just compensation remedy in the Takings Clause is self-executing such that property owners do not require legislative authorization before bringing suit. Devillier relies on First English, where the Supreme Court found that “a landowner is entitled to bring an action in inverse condemnation as a result of the ‘self-executing character of the constitutional provision with respect to compensation.’” There, the petitioners alleged that a city ordinance amounted to a taking. The California Supreme Court held the petitioners were not entitled to damages because none were available for a regulatory taking. The U.S. Supreme Court reversed, holding that damages were mandatory for takings of private property based on the text of the Takings Clause. “Statutory recognition was not necessary.” Devillier asserts that First English was supported by over a century of precedent applying the same universal rule that property owners were entitled to compensation upon the state or federal government’s taking private property for public use.
Texas responds that the Supreme “Court recently explained that the Fifth Amendment does not contain any express cause of action to sue the federal government for a taking. See Maine Cmty. Health Options, 140 S. Ct. at 1328 n.12; id. at 1334 & n.3 (Alito, J., dissenting).” Texas further insists that the “Court’s modern jurisprudence regarding the federal separation of powers does not allow for the judicial creation of a cause of action to sue a State on a takings theory. . . . Today, . . . ‘in all but the most unusual circumstances, prescribing a cause of action’ to enforce the Fourteenth Amendment ‘is a job for Congress, not the courts.’” And that the Fifth Amendment is “self-executing” simply “means that it is positive law of its own force without further action.” It does not mean, says Texas, “that there is automatically a private cause of action for damages if the clause is violated.”
Sheetz v. County of El Dorado, Cal., 22-1074. The question presented is whether a building permit exaction is exempt from the individualized inquiry required under the Takings Clause when it is authorized by a generally applicable law. A county ordinance requires property owners who seek construction permits to pay a traffic-impact fee, which finances building new roads and widening existing ones. The fee is based on the proposed project’s location and type without consideration of its actual traffic impacts. To obtain a permit to build a single-family home, petitioner George Sheetz was required to pay a $23,000 traffic-impact fee. He objected that the fee exceeded the likely impact of his construction, and went on to challenge the exaction as an unconstitutional taking under Nollan v. California Coastal Commission, 483 U.S. 825 (1987), and Dolan v. City of Tigard, 512 U.S. 374 (1994). These cases require an individualized determination of whether an exaction bears an “essential nexus” and “rough proportionality” to the impacts of the permittee’s project. The state trial court upheld the traffic-impact fee, the court of appeal affirmed (84 Cal. App. 5th 394), and the California Supreme Court denied review.
The court of appeal held that because the exaction was authorized by legislation, it was exempt from individualized Nollan/Dolan review. The court reasoned that the Nollan/Dolan requirements “do not extend to development fees that are generally applicable to a broad class of property owners through legislative action . . . as distinguished from a monetary condition imposed on an individual permit application on an ad hoc basis.” The court followed California Supreme Court precedent that drew this distinction because fees imposed through the legislative process are subject to the restraints of the democratic political process and thus less likely to result in extortionate, unconstitutional demands on property owners.
Sheetz argues that Nollan/Dolan review should apply to all permit exactions regardless of which government body imposes them and regardless of whether they are generally applicable requirements. Quoting Justice Thomas’s dissent from a denial of certiorari raising the same issue decades ago, Parking Ass’n of Ga., Inc. v. City of Atlanta, 515 U.S. 1116 (1995), Sheetz contends that the legislative vs. ad hoc line is a “distinction without a constitutional difference.” This is so, he argues, because property owners are subject to the same injury, regardless of which branch of government imposes the condition. Sheetz thus maintains that the government must establish that the traffic-impact fee for his building permit bears an “essential nexus” and “rough proportionality” to his proposed project—and failed to do so here.
FBI v. Fikre, 22-1178. A defendant that voluntarily ceases challenged conduct during litigation can establish mootness only if it is “absolutely clear that the allegedly wrongful behavior could not reasonably be expected to recur.” Already, LLC v. Nike, Inc., 568 U.S. 85, 91 (2013). The question presented here is whether claims challenging one’s placement on the federal government’s no-fly list are mooted by removal from the list and a declaration that the individual will not be relisted without new information.
American citizen Yonas Fikre learned that he was on the no-fly list while travelling in Sudan. FBI agents offered to remove him from the list if he would become an informant. Fikre refused. Unable to return to the U.S., he eventually sought refuge in Sweden, which flew him home on a private jet five years later. In the meantime, Fikre sued the U.S. government, contending in part that his list placement violated his due process rights and seeking removal from the list and a declaration that he should not have been added in the first place. While the suit was pending, the government took Fikre off the list, resulting in the district court dismissing his claims as moot. The Ninth Circuit reversed but suggested that the government could establish mootness with a declaration that repudiated Fikre’s initial placement on the list and that assured him that future listing decisions would be based on new information. On remand, the government provided a declaration and the district court again dismissed Fikre’s claims as moot. The Ninth Circuit reversed. 35 F.4th 762.
The Ninth Circuit concluded that the government had not established mootness because it had not “acquiesce[d] to the righteousness of Firke’s contentions” that his initial placement on the list was unlawful and therefore had not adequately assured him that he would not be banned from flying again on the very same basis. The government’s declaration explained that Fikre was placed on the list “in accordance with applicable policies and procedures,” was removed because “he no longer satisfied the criteria for placement,” and would not be placed on the list “in the future based on the currently available information.” The court decided that this was inadequate because it did not renounce the original listing decision, announce a policy change that would prevent Fikre from being relisted, or explain why he was added but no longer qualified. The court also reasoned that meaningful relief was still available to Firke; vindication would end the stigma caused by his initial placement on the list.
The government argues that Firke’s removal from the list mooted his claims. First, the government contends that the Ninth Circuit’s principal rationale—that the claims are not moot because the government has not acquiesced to the righteousness of the contentions—“incorrectly confuses mootness with an admission of liability on the merits.” The government explains that mootness is a forward-looking doctrine, pointing out that a case may be moot no matter how vehemently the parties continue to dispute the lawfulness of the precipitating conduct. And here, the government argues that the declaration established mootness by making it “absolutely clear” that Firke had been removed from the list and would not be relisted based on the same information. Second, the government argues that the Ninth Circuit’s decision disregards the presumption of regularity for government actions, “improperly presuppos[ing] that the government was willing to take respondent off the [list] and risk harm to national security (for seven years and counting) simply to moot this case, or that the government will immediately put him back on the list on the thinnest of pretexts as soon as litigation has concluded.” Third, the government contends that the Ninth Circuit’s demanding standard would needlessly allow further litigation over claims that “have no ongoing real-world relevance” and “invite the lower courts to issue advisory opinions in contravention of Article III.” The government claims this is particularly problematic in the national-security context where the continuation of litigation is likely to lead to discovery disputes over the disclosure of classified and other sensitive information. Fourth and finally, the government argues that Fikre’s interest in his reputation was not a cognizable liberty or property interest within the meaning of the Due Process Clause.
Corner Post, Inc., v. Board of Governors of the Federal Reserve System, 22-1008. Title 5 U.S.C. §702 entitles any person suffering a legal wrong due to agency action to judicial review. Under 28 U.S.C. §2401(a), “every civil action commenced against the United States shall be barred unless the complaint is filed within six years after the right of action first accrues.” At issue here is when a claim accrues under the Administrative Procedure Act for purposes of determining when the six-year statute of limitations begins to run. Does it first accrue when the regulation was published or when the claimant suffered an injury (i.e., a legal wrong)?
In 2011, Congress passed the Durbin Amendment to the Dodd-Frank Wall Street Reform and Consumer Protection Act, which directs the Federal Reserve Board to regulate debit-card transaction fees that merchants pay large banks. The amendment directed the Board to cap interchange fees for the largest banks at an amount that is “reasonable and proportional to the cost incurred by the [bank] issuer with respect to the transaction.” 15 U.S.C. §1693o-2(a)(2). In July 2011, the Board set a fee. In 2021, Corner Post (a truck stop that opened in 2018) joined other claimants in an APA lawsuit against the Federal Reserve’s Board of Governors challenging the 2011 regulation as too low and therefore not “reasonable and proportional to the cost incurred by the [bank] issuer with respect to the transaction.” The district court dismissed the suit as time barred, finding that the statute of limitations began to run after publication of the agency action, which meant that the limitations period expired in 2017―before Corner Post even opened. The Eighth Circuit affirmed (55 F.4th 634), holding that a facial cause of action first accrues under the APA upon agency publication of the regulation no matter when the claimant was injured by the agency’s action. Its decision followed decisions from the Fourth, Fifth, Ninth, D.C., and Federal Circuits.
Corner Post argues that the Sixth Circuit and a dissenting judge from the Fifth Circuit got it right when they concluded that the statute of limitations under §2401(a) begins running when a plaintiff suffers an injury, not when an agency regulation is published. This is so, it argues, regardless of whether the plaintiff was raising an as-applied or a facial challenge. Corner Post maintains that the Eighth Circuit’s holding conflicts with Supreme Court precedent concerning how to apply statutes of limitation. In Bay Area Laundry & Dry Cleaning Pension Tr. Fund v. Ferbar Corp. of Cal., 522 U.S. 192 (1997), the Court instructed that a “limitations period commences when the plaintiff has ‘a complete and present cause of action.’” And “a cause of action does not become ‘complete and present’ for limitations purposes until the plaintiff can file suit and obtain relief.” Further, says Corner Post, under the APA, a plaintiff who has yet to be harmed by an agency’s action cannot “file suit and obtain relief” because the Supreme Court has “interpreted §702 as requiring litigants to show, at the outset of the case, that he is injured in fact by the agency action.” Lastly, Corner Post argues that the Eight Circuit’s decision excised 5 U.S.C. §702 out of the APA by removing the requirement that a claimant suffer a legal wrong to bring suit; and it shielded agency actions from APA challenges by thwarting judicial review six years after agencies publish regulations.
Bissonnette v. LePage Bakeries Park St., LLC, 23-51. Section 1 of the Federal Arbitration Act (FAA) exempts “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from enforcement of arbitration clauses. In previously addressing this exemption, the Court held that it applies to transportation workers’ contracts and to both employees and independent contractors. At issue here is whether claimants must prove that their employers are in the transportation industry in addition to showing that they are a transportation worker.
Petitioners are truck drivers who work as independent contractors for Flowers Foods transporting its baked goods within Connecticut. They sued Flowers Foods, alleging that the company had violated state and federal wage laws. Flowers Foods moved to compel arbitration based on arbitration clauses in their distribution agreement. Petitioners objected, arguing they were exempt from the FAA under Section 1. The district court disagreed for reasons no longer relevant. A divided panel of the Second Circuit affirmed but on different grounds. 49 F.4th 655. It held that the FAA exemption’s application is determined by the industry and not by the work the employee does for the company. And here, it found that petitioners were not in the transportation industry because they were hired not by a transportation company but by Flowers Foods, a company that sells baked goods. Thus, petitioners were in the “bakery industry, not a transportation industry,” placing them outside the Section 1 exemption.
Petitioners argue that there is a circuit split on the issue. On the merits, they assert that the Second Circuit improperly disregarded the command of Sw. Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022), to look at the employee’s work rather than what the employee does generally to determine whether the FAA exemption applies. Petitioners also argue that the Second Circuit’s decision contravened the statutory text because it conditioned its application on additional requirements of its own making. Lastly, Bissonnette says that the Second Circuit’s approach is unworkable because it raised more questions than answers, such as how to prove its industry requirement.
Office of the United States Trustee v. John Q. Hammons Fall 2006, LLC, 22-1238. In Siegel v. Fitzgerald, 142 S. Ct. 1770 (2022), the Court held that the increased quarterly fee schedule imposed under the 2017 congressional amendment to the Bankruptcy Judgeship Act was unconstitutional because added fees in the 88 United States Trustee (UST) bankruptcy districts were not imposed in the six Bankruptcy Administrator (BA) districts. The Court will now resolve what the proper remedy is for the non-uniform fees previously imposed.
The UST program provides oversight and administrative support in bankruptcy cases. When it became permanent in 1986, Congress permitted six of the 94 federal judicial districts to opt out of the program and use the BA program under the supervision of the Judicial Conference. Congress requires the UST program be funded by its users, thus requiring quarterly fees. Congress similarly requires the six BA program users to pay the same fees, enforced by the Judicial Conference. In 2017, Congress passed an amendment increasing the quarterly fees paid by large debtors in Chapter 11 proceedings. The amendment did not expressly impose the same requirement on BA districts, and the BA districts did not follow it. In 2020, Congress amended the Act to require BA districts to pay the same increased fees. Last year, in Siegel, supra, the Court held that the 2017 fee schedule violated the uniformity requirement of the Bankruptcy Clause because it permitted unequal fees. The Court left open the question of what the proper remedy was for the non-uniform fee schedule because the lower court had not decided that issue. John Q. Hammons and 76 associated entities instituted a Chapter 11 bankruptcy proceeding in 2016 in a UST district and paid quarterly fees under the amended schedule that took effect in January 2018. They later sought a refund of the excess fees paid. The district court denied the motion. The Tenth Circuit reversed and ordered refunds for debtors who paid fees exceeding the amount BA debtors would have owed. 2022 WL 3354682. The Tenth Circuit noted that it lacked authority over fees assessed in the BA districts.
The U.S. Trustee argues that the proper remedy―based on Congress’s intent―is prospective relief. The U.S. Trustee reasons that Congress’s decision to mandate uniform fees in all districts prospectively in the 2020 amendment ends the inquiry. That may not retrospectively remedy John Q. Hammons’ payment of excess fees, but “relief need not be retrospective.” The U.S. Trustee notes that “[a] plaintiff who suffers a violation, even the violation of an individual right, might receive no effective relief for various reasons,” and that “for constitutional violations, retrospective monetary relief is rarely available at all.” The U.S. Trustee further argues that even if the Court found retrospective relief was appropriate, the remedy should be to collect the fee difference from the six BA districts rather than provide refunds to debtors in the 88 UST districts. Doing so, the U.S. Trustee contends, would only require payments in 60 cases in the BA districts in contrast to refunds in 2,100 cases in the UST districts, which would amount to $326,000,000―all at the potential expense of the taxpayers rather than the users of the bankruptcy system as Congress intended.
Macquarie Infrastructure Co. v. Moab Partners, L.P., 22-1165. Section 10(b) of the Securities Exchange Act and implementing Rule 10b-5 prohibit deception in the purchase or sale of securities by making untrue or misleading statements. The section provides a private cause of action for violations. A different rule, Item 303 of SEC Regulation S-K, requires the disclosure of known trends or uncertainties that are likely to materially impact a company’s financial position. The question presented is whether a failure to make a disclosure required under Item 303 can support a private claim under Section 10(b), even without an otherwise misleading statement.
A group of investors sued Macquarie Infrastructure Co. alleging that the company and its management defrauded investors by failing to disclose that an international regulation capping the sulfur content of fuel oil used in shipping would affect the company’s revenue from storage of No. 6 fuel oil, which would in turn negatively impact its overall financial performance. The district court granted the defendants’ motion to dismiss, concluding that the investors had not alleged actionable failures to disclose under Item 303 and scienter under Section 10(b). The investors appealed and the Second Circuit reversed in an unreported opinion, following Stratte-McClure v. Morgan Stanley, 776 F.3d 94 (2nd Cir. 2015). In Stratte-McClure, the Second Circuit held that an Item 303 violation can be a basis for private liability under Section 10(b). The court concluded that a duty to disclose under Section 10(b) can derive from statutes or regulations that obligate a party to speak—and Item 303 was such a rule. But the court held that an omission was actionable only if it met the standards for materiality imposed under Section 10(b), rather than the test for a duty to report under Section 303, which was a different inquiry. The court also explained that scienter remained an element of a Section 10(b) claim. In the decision in this case, the Second Circuit concluded that the investors’ allegations in their complaint, if true, satisfied this standard and were sufficient for their cause of action to proceed.
Petitioners―the company and its management―argue that basing Section 10(b) liability on a violation of a different SEC disclosure obligation enlarges the private right of action in a way congressional intent and precedent do not support. They contend that Section 10(b) disallows misleading half-truths but does not impose an affirmative obligation to tell investors everything they need to know. “By nonetheless recognizing a private cause of action for an Item 303 violation through the vehicle of a Section 10(b) claim, the Second Circuit permits plaintiffs to plead around the rule’s text.” Petitioners also argue that Item 303 is unsuited for an implied private right of action because the disclosure duty requires making uncertain, subjective predictions and what disclosures are mandatory, rather than optional, under Item 303 is difficult to parse out. Lastly, petitioners contend that allowing a private cause of action based on Item 303 disclosures would incentivize overdisclosure, resulting in “an avalanche of trivial information” not conducive to informed decisionmaking.
McIntosh v. United States, 22-7386. The question presented is “[w]hether a district court may enter a criminal forfeiture order outside the time limitations set forth in Rule 32.2, Fed. R. Crim. P.” Petitioner Louis McIntosh was convicted of various Hobbs Act robbery offenses and firearm offenses. At sentencing, the district court orally ordered restitution and forfeiture of $75,000 plus McIntosh’s BMW. It memorialized its orders in a written judgment. The district court further ordered the government to submit a formal forfeiture order within one week, which did not happen. On direct appeal, the Second Circuit granted the government’s unopposed motion to remand to allow the government to request a formal forfeiture order. The district court later entered formal restitution and forfeiture orders over McIntosh’s timeliness objection under Rule 32.2. Under Rule 32.2(b)(2)(B), “[u]nless doing so is impractical, the court must enter the preliminary order sufficiently in advance of sentencing to allow the parties to suggest revisions or modifications before the order becomes final as to the defendant.” McIntosh appealed again, challenging the timeliness of the forfeiture order. The Second Circuit overruled the objection. 58 F.4th 606.
The Second Circuit relied on Dolan v. United States, 560 U.S. 605 (2010), where the Supreme Court held that the 90-day deadline for ordering restitution under the Mandatory Victims Restitution Act was a “time-related direction” that was “legally enforceable,” rather than a jurisdictional or mandatory claims-processing rule, and thus a sentencing court’s failure to follow it did not “deprive the court of the power to order restitution.” The Second Circuit further reasoned that Rule 32.2(b) did not outline a consequence for failing to follow its deadlines; the committee notes for the rule indicated that the deadline was intended to give the parties a chance to modify the order before becoming final; preventing forfeiture could harm victims, who can receive forfeited funds; “rigidly” interpreting the deadline would “disproportionately benefit defendants”; and a defendant concerned about a delay could always alert the district court before sentencing.
McIntosh argues that the district court was precluded from ordering forfeiture because the forfeiture order was not entered in compliance with Rule 32.2(b)’s deadlines. McIntosh relies on United States v. Maddux, 37 F.4th 1170 (6th Cir. 2022), where the Sixth Circuit held that the mandatory language in Rule 32.2(b) showed that it was a claims-processing rule. It thus rejected the government’s attempt to obtain forfeiture years after sentencing. McIntosh also relies on United States v. Shakur, 691 F.3d 979 (8th Cir. 2012), where the Eighth Circuit denied a request to enter a forfeiture order 83 days after judgment because a preliminary order was not submitted before sentencing and included in the judgment. The Shakur Court concluded that Rule 32.2 was jurisdictional and thus it lost its power to enter a forfeiture order.
Warner Chappell Music v. Nealy, 22-1078. Under the discovery rule and the statute of limitations in 17 U.S.C. §507(b), claims about copyright ownership are timely if a plaintiff sues within three years of when the plaintiff knew or reasonably should have known of a defendant’s infringement, regardless of when the infringing acts occurred. The question presented is whether the statute of limitations limits not only the plaintiffs’ ability to sue but also damages for timely copyright suits: May plaintiffs recover damages for acts occurring more than three years before the filing of a complaint that is timely under the discovery rule? In this case, plaintiffs sued media companies for using copyrighted music, claiming that the companies lacked valid licenses because plaintiffs were the rightful copyright owners and did not authorize the use. On summary judgment, the district court ruled in relevant part that under Petrella v. Metro-Goldwyn Mayer, 572 U.S. 663 (2014), plaintiffs’ potential damages were limited to three years before the filing of the complaint. The court certified the issue for interlocutory review. The Eleventh Circuit granted review and reversed. 60 F.4th 1325.
The Eleventh Circuit held that the statute of limitations did not limit damages to infringements occurring within three years of the filing of the complaint. The court relied on the plain text of the Copyright Act, which does not place a time limit on remedies for an otherwise timely claim. The court distinguished Petrella, which barred the equitable defense of laches, because the copyright statute of limitations already adequately protected defendants from stale claims. Although Petrella included broad statements that could mean that copyright plaintiffs could never receive relief for violations occurring more than three years before the filing of the suit, the Eleventh Circuit concluded that “Petrella’s statements about the availability of relief are directed to the way the statute of limitations works when claims accrue” based on the date of injury, not discovery. The Eleventh Circuit concluded that the discovery rule protects defendants from stale claims in a different way than the injury rule—by cutting off all claims against a specified defendant three years from when the plaintiff discovers the infringing conduct, in contrast to the injury rule, which precludes a plaintiff’s recovery for any infringements that occurred earlier than three years before the suit.
Petitioners argue that Petrella limited relief for copyright plaintiffs to no more than three years—regardless of when plaintiffs knew or should have known about their cause of action. Petitioners point out that Petrella noted that “Section 507(b) bars relief of any kind for conduct occurring prior to the three-year limitations period”—a point the Supreme Court repeatedly stressed in that case. Petitioners view this observation as “one of the lynchpins” for the Court’s ultimate decision not to permit the defense of laches. Petitioners also argue that their interpretation of Petrella does not eviscerate the discovery rule but strikes the right balance by allowing plaintiffs to file claims when they discover them while “protecting defendants from the evidentiary and financial prejudice of having to answer for infringements more than three years old.” Petitioners note that, even with the limitation, plaintiffs can still seek actual damages and profits for infringements that occurred in the three years immediately preceding the suit, as well as injunctive relief, impoundment of infringing articles, and attorneys’ fees.
NAAG Center for Supreme Court Advocacy Staff
- Dan Schweitzer, Director and Chief Counsel, (202) 326-6010
- Todd Grabarsky, Supreme Court Fellow
- Van Snow, Supreme Court Fellow
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