United States: Supreme Court Docket Report - January 22, 2013

Last Updated: January 23 2013
Article by Richard B. Katskee

Last Friday, the Supreme Court granted certiorari in two cases of interest to the business community:

  • Securities Litigation Uniform Standards Act—Misrepresentations "in Connection with" Securities Transactions
  • Title VII—Retaliation—Mixed-Motive Claims

Securities Litigation Uniform Standards Act—Misrepresentations "in Connection with" Securities Transactions

The Securities Litigation Uniform Standards Act ("SLUSA") precludes the filing in either state or federal court of most class actions under state law that allege "a misrepresentation or omission of a material fact in connection with the purchase or sale of" securities covered by the statute. 15 U.S.C. § 78bb(f)(1)(A). On Friday, the Supreme Court granted certiorari in three consolidated cases—Chadbourne & Parke LLP, No. 12-79, Willis of Colorado v. Troice, No. 12-86, and Proskauer Rose LLP v. Troice, No. 12-88—to clarify the standard for determining whether a misrepresentation qualifies as "in connection with" a securities transaction. In granting certiorari, the Court rejected the recommendation of the Solicitor General, whose views the Court had solicited, that certiorari be denied.

Because the Court's resolution of these cases is likely to clarify the range of class actions precluded by SLUSA, it may prove significant for all businesses that purchase, sell, or make representations concerning securities.

The respondents in all three cases—plaintiffs in the district court—filed class actions relating to certificates of deposit that they purchased from entities controlled by R. Allen Stanford. Respondents alleged that although the petitioners in Willis of Colorado represented the CDs to be safe investments with consistently above-market returns, the CDs were actually part of a Ponzi scheme run by Stanford. Respondents further alleged that the law-firm petitioners in Chadbourne & Parke and Proskauer Rose aided and abetted the scheme by, among other things, misrepresenting their ability to oversee Stanford's operations.

The district court held that SLUSA precluded respondents' claims. Specifically, the court concluded that respondents had alleged misrepresentations "in connection with" securities transactions for two reasons: (1) respondents alleged that they were induced to purchase the CDs because Stanford's companies represented, among other things, that their investments in securities allowed them to offer high rates of return on CDs, and (2) respondents had sold securities in order to purchase the CDs. See Roland v. Green, 675 F.3d 503, 510 (5th Cir. 2012).

The Fifth Circuit reversed. After noting that other courts of appeals had interpreted the "in connection with" requirement in various ways, the Fifth Circuit adopted the view of the Ninth Circuit that the requirement is satisfied "if there is a relationship in which the fraud and the stock sale coincide or are more than tangentially related." Id. at 520 (internal quotation marks omitted). Applying that test, the Fifth Circuit concluded that SLUSA did not preclude respondents' claims, because "the heart, crux, and gravamen of [the] allegedly fraudulent scheme" involved the representation "that the CDs were a 'safe and secure investment.'" Id. at 522. Securities transactions, the court held, were "not more than tangentially related to [that] scheme." Id. at 523. 

Absent extensions, amicus briefs in support of the petitioners will be due on March 11, 2013, and amicus briefs in support of the respondents will be due on April 10, 2013.

* * * *

Title VII—Retaliation—Mixed-Motive Claims

Title VII of the Civil Rights Act of 1964 prohibits an employer from discriminating against an employee "because [the employee] has opposed an employment practice made unlawful" by Title VII or "has made a charge, testified, assisted, or participated in any manner in an investigation, proceeding, or hearing" under Title VII. 42 U.S.C. § 2000e-3(a). On Friday, the Supreme Court granted certiorari in University of Texas Southwestern Medical Center v. Nassar, No. 12-484, to decide whether an employee alleging retaliation in violation of Title VII satisfies the burden of proof by establishing that retaliation was a motivating factor in an adverse employment decision, or whether the employee must instead go further and prove that the employer would not have taken the adverse action but for the improper motive.

In Price Waterhouse v. Hopkins, 490 U.S. 228, 250 (1989), the Supreme Court held that in suits alleging discrimination under Title VII, a plaintiff satisfies the initial burden of proof by showing that the discrimination was "a motivating factor" in an adverse employment decision; the burden then shifts to the employer to demonstrate that it would have taken the adverse action regardless of the discriminatory motive. Id. at 252. Congress later amended Title VII's antidiscrimination provision—but not its retaliation provision—so that it expressly imposes liability in "mixed-motive" cases, while allowing the employer to avoid paying damages if it proves that it would have made the same decision in the absence of an improper motive. See 42 U.S.C. § 2000e-2(m). In Gross v. FBL Financial Services, Inc., 557 U.S. 167 (2009), the Supreme Court held that Price Waterhouse's burden-shifting framework does not apply to suits under the Age Discrimination in Employment Act. Construing that statute's prohibition against employment discrimination "because of [an] individual's age," 29 U.S.C. § 623(a)(1), the Court held that plaintiffs must prove "that age was the 'but–for' cause of the challenged employer decision." Gross, 557 U.S. at 177-78. The circuits are divided over whether Price Waterhouse or Gross establishes the standard for retaliation claims under Title VII: The First, Sixth, and Seventh Circuits have held that plaintiffs alleging retaliation must prove but–for causation. In contrast, the Fifth and Eleventh Circuits have held that Price Waterhouse's burden-shifting framework applies. 

In this case, Nassar, a doctor of Middle Eastern descent, sued his former employer, the University of Texas Southwestern Medical Center, alleging that the university prevented him from obtaining a position at its affiliated HIV/AIDS clinic in retaliation for a discrimination complaint that he had made against his supervisor at the medical school. The university responded that it had decided to deny Nassar the position at the clinic even before Nassar complained of discrimination.

The district court instructed the jury that Nassar could satisfy his burden of proof by establishing that a retaliatory impulse was one motivating factor in the university's decision to fire him, and the jury returned a verdict in Nassar's favor. The Fifth Circuit affirmed, holding that Nassar could prevail by establishing that the university's stated reason for its employment action, "while true, was only one reason for [the adverse action], and race was another motivating factor." The court of appeals voted 9-6 to deny en banc review. Dissenting from the denial of rehearing en banc, Judge Jerry Smith opined that the Fifth Circuit should overrule its precedent regarding the application of Gross to Title VII retaliation claims.

This case is of interest to all employers. The Supreme Court's decision will determine the viability of many retaliation claims under Title VII, and will likely also influence standards of causation under other federal antidiscrimination statutes.

Absent extensions, amicus briefs in support of the petitioner will be due on March 11, 2013, and amicus briefs in support of the respondent will be due on April 10, 2013.

* * * *

Earlier last week, the Supreme Court invited the Solicitor General to file briefs expressing the views of the United States in the following cases of interest to the business community:

Unite Here Local 355 v. Mulhall, Nos. 12-99 and 12-312: The petition and cross-petition collectively present the question whether the Labor-Management Relations Act prohibits an employer and a union from entering into an agreement under which the employer promises to remain neutral with respect to union organizing and to allow the union limited access to the employer's property, and the union promises in return not to picket or boycott the employer's business.

Pfizer Inc. v. Law Offices of Peter G. Angelos, No. 12-300: The question presented is whether claims can proceed against the corporate parent of the bankrupt manufacturer of asbestos-containing products when the manufacturer itself has funded a global-settlement trust under Section 524(g) of the Bankruptcy Code.

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