It was a banner year for business at the US Supreme Court. In a string of cases, the court systematically dismantled legal protections for individuals' rights and provided corporations with legal authority not seen since the 19th century. The question, even for those in corporate legal departments, is whether this overwhelmingly one-sided approach may ultimately backfire on US businesses.
In a global market, one of the US' most frequently cited competitive advantages is a robust legal system in which the proverbial 'little guys' like entrepreneurs and individual consumers, can defend their businesses from larger and better funded companies. Removing those protections reduces one key element of 'American Exceptionalism' and threatens to make the US market little different from those elsewhere, including Russia or China. The advantages corporations have won are chump change compared to the loss of that market power. JL
Dahlia Lithwick reports in Slate:
"Depending on how you count "big cases," the Supreme Court has just finished off either a great (according to the U.S. Chamber of Commerce) or spectacularly great (according to a new study by the Constitutional Accountability Center) term for big business. The measure of success here isn't just the win-loss record of the Chamber of Commerce, although that's certainly part of the story. Nor is it news that—in keeping with a recent trend—the court is systematically closing the courthouse doors to everyday litigants, though that's a tale that always bears retelling.
The reason the Roberts Court has proven to be Christmas in July for big business is this: Slowly but surely, the Supreme Court is giving corporate America a handbook on how to engage in misconduct. In case after case, it seems big companies are being given the playbook on how to win even bigger the next time.
Start with one of the most important cases of the term, the recently deceased class-action suit filed by a million and a half women employed by Wal-Mart. The headlines—including mine—contended that the import of the court's decision lay in the ways class-action suits would be severely limited in the future. But dig a little deeper. In his majority opinion on behalf of the five conservatives on the court, Justice Antonin Scalia found that Wal-Mart could not be held accountable for discrimination in pay and promotions because the plaintiffs lacked "convincing proof of a companywide discriminatory pay and promotion policy." Then Scalia went one further and offered Wal-Mart, the largest private employer in the country, a virtual guidebook on how to discriminate better: Do it in bulk up and down the chain of command, and make certain to do it at every possible level. As SCOTUSblog's Lyle Denniston pointed out almost immediately after the decision came down:
For large companies in general, the ruling in Wal-Mart … offered a second message: the bigger the company, the more varied and decentralized its job practices, the less likely it will have to face a class-action claim. Only workers who have a truly common legal claim may sue as a group, the Court majority made clear—and, even that claim will require rigorous proof that every single worker suffered from exactly the same sort of bias. Sample statistics and anecdotes won't do.
The greatest impact of the Wal-Mart decision isn't the blow dealt to class-action suits. It's the guidance it provides employers: Immunize yourself from claims of gender discrimination with a written policy that says "we don't discriminate" and a system of decentralized decision-making. The decision doesn't discourage future corporate discrimination. It just makes it harder to identify and prove it.
The same is true for the court's remarkable 5-4 holding in AT&T Mobility v. Concepcion. In that decision, the court read a federal statute to mean that consumers may not participate in class action suits if their contract—in this case, with a cell phone company—contains an arbitration agreement (by which, I promise you, you are currently bound). In AT&T, a class of California plaintiffs tried to bundle together their claims alleging that AT&T had engaged in false advertising and fraud by charging sales tax on phones it had promoted as free. California law provided that the mandatory arbitration provision was not enforceable and that the parties should be allowed to litigate as a class. But the court—Scalia writing again—determined that the California rule was pre-empted by the Federal Arbitration Act. "It was important [for the court] to protect defendants, such as corporations, from the 'in terrorem' effects of class actions, which pressure them into settlements," writes Erwin Chemerinsky, dean of the UC-Irvine School of Law. "In fact, the Court went further and said that the Federal Arbitration Act requires that claims be arbitrated on an individual basis and that class arbitration is not allowed."
Yes, the AT&T case will make class-action suits vastly less likely, as Justice Stephen Breyer pointed out in his dissent: "What rational lawyer would have signed on to represent the Concepcions in litigation for the possibility of fees stemming from a $30.22 claim? The realistic alternative to a class action is not 17 million individual suits, but zero individual suits, as only a lunatic or a fanatic sues for $30." Even more important, however, the case provides corporate America with another useful tip on how to avoid costly litigation: If you haven't already done so, rush to lock your customers and /or employees into invisible mandatory arbitration agreements that will bar them from challenging your misconduct in a class-action suit. As Nan Aron at Alliance for Justice explained when the AT&T case first came down, the real winner here was not "justice":
Corporations will now be able to decide on their own which civil rights and consumer protections they want to obey, knowing that there will be no effective means available to their victims to find redress. Even worse, not only has the radical conservative majority damaged the ability of consumers or employees to find justice, it has effectively removed any incentive for corporations to behave within the law in the first place. Why act lawfully if your victims are helpless, especially in cases like this when the harm to each individual is small but the potential for profit is huge?
put it even more starkly. After AT&T, he writes, big corporations "need never worry about a class action again. They can simply tell all of their workers to sign away their rights or they're fired. Likewise, cell phone companies, banks, credit card companies, nursing homes—indeed, anyone who requires you to sign an agreement before they will do business with you—can completely immunize themselves from class actions simply by adding a few magic words to the agreement." We may need a new metaphor. This is not merely closing the courthouse doors anymore. It's turning the civil justice system into a hostage situation.
Which brings us to the third case in this trifecta, a case that has gone largely unnoticed in the blur that is the end of the 2010 term: In yet another 5-4 decision last week, Janus Capital Group, Inc. v. First Derivative Traders, the court not only immunized big business from yet more awkward and messy litigation; it gave them an instruction manual on how best to lie to consumers. Millhiser again:
Securities and Exchange Commission regulations make it illegal to "make any untrue statement of a material fact … in connection with the purchase or sale of any security." And according to a complaint filed by the New York Attorney General's office, an investment company named Janus did exactly that. Essentially, the complaint maintains, Janus promised its investors that it would prevent any new investors from engaging in a particular kind of price manipulation while secretly entering into agreements permitting that manipulation to occur.
In a 5-4 opinion written by Justice Clarence Thomas, the court found that the false and misleading statements made by Janus were not in fact "made" by Janus but by a second company Janus had set up, which acted—in Thomas' view—more like … a speechwriter. And, as a mere speechwriter, of course, it couldn't be held responsible for its statements.
Even though Janus Capital Management did indeed produce the false prospectuses, the court found that they were actually filed by a separate legal entity—the Janus Investment Fund. And even though the Janus Investment Fund is run by Janus Capital Management, Janus Capital Management is not on the hook for the lies. Wrote Thomas, "Even when a speechwriter drafts a speech, the content is entirely within the control of the person who delivers it. And it is the speaker who takes credit—or blame—for what is ultimately said."
Don't even bother asking how huge financial companies will benefit from the holding in the case. It's as easy as setting up a dummy corporation to make your false statements for you. In the wake of the holding, William A. Birdthistle, an associate professor of law at Chicago-Kent College of Law, told Bloomberg columnist Susan Antilla to expect "corporations outside of the investment-management business to alter their legal structures to gain the same protection that funds now enjoy." As he put it, "In Delaware, with 30 minutes and $50, you can create a legal entity."
As the Boston Globe editorialized, the new rule "lets Janus and similar companies hide false information in a complicated organization chart [and] can only undermine public confidence in the mutual fund industry over time." Ask yourself whether you really want the Supreme Court to be in the business of teaching corporate giants how better to deceive you about your investments. Yet Thomas, like Scalia in the AT&T case, was more worried about Janus, and its possible exposure to burdensome new lawsuits, than he was about the investors who were deceived. The purpose of civil litigation isn't solely to redress past wrongs. It's also to encourage better future conduct, particularly in situations where the parties have vastly unequal power. When you obliterate the very possibility of civil litigation, you are, by definition, helping big business screw over the little guy. But when you teach big business precisely how to screw over the little guy, and how to do it faster, cheaper, and without detection … well, that's not even an illusion of justice anymore. It's enabling.
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