United States: Supreme Court Issues Two Decisions That Limit Access To Federal Courts

On May 16, 2016, the United States Supreme Court handed down two decisions that may, in practice, limit the ability to access federal district courts.  In Spokeo, Inc. v. Robins, No. 13-1339, 578 U.S. ___ (2016), the Supreme Court rejected the Ninth Circuit's conclusion that statutory violations are per se sufficient to confer Article III standing, and, in Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, No. 14-1132, 578 U.S. ___ (2016), the Court concluded that jurisdiction under Section 27 of the Securities and Exchange Act (Exchange Act) is limited to suits brought under the Exchange Act and state law claims that turn on the plaintiff's ability to prove the violation of a federal duty.

Spokeo, Inc. v. Robins

Spokeo concerns a representative plaintiff—Thomas Robins—whose biographical information was inaccurately reported by Spokeo Inc.  At issue was whether Robins had standing to sue simply because Congress imposed upon consumer reporting agencies, which Spokeo was alleged to be, a requirement to employ procedures to assure maximum possible accuracy of consumer reports.  The Ninth Circuit found that "alleged violations of Robin's statutory rights [under the Fair Credit Reporting Act ("FCRA") we]re sufficient to satisfy the injury-in-fact requirement of Article III" because he had been injured as a consequence of the statutory violation and the interests protected by FCRA—protection of personal information—are sufficiently individualized.  Robins v. Spokeo, Inc., 742 F.3d 409, 413 (9th Cir. 2014).  The Supreme Court reversed, holding that the Ninth Circuit improperly disregarded Article III's "concreteness" requirement.

As the Supreme Court explained, to demonstrate an injury in fact, plaintiffs must show the injury was "both concrete and particularized."  Although the Ninth Circuit recognized that Robins suffered an injury on account of the statutory violation and that the handling of his personal information was individualized, the Supreme Court concluded that both of "those observations concern particularization, not concreteness," which the Ninth Circuit was obligated to address.

The Court went on to explain what concreteness entails.  A concrete injury is one that is "real," and not "abstract."  The injury need not, however, be tangible.  To determine whether an intangible injury qualifies for standing purposes, courts must look to history as well as the judgment of Congress—that is, whether the injuries were (1) ones that were traditionally sufficient to bring suit in English or American courts or (2) those traditionally deemed insufficient but that Congress has sought to elevate to qualify as concrete injuries.  Notably though, simply because Congress has created a statutory right does not mean a violation confers standing.  Rather, "a concrete injury" is still required "in the context of a statutory violation."

The Court concluded that though Congress sought to deter dissemination of false information with the passage of FCRA, inaccurate reporting in of itself does not constitute an adequate injury for Article III purposes (e.g., an inaccurate zip code).  Because the Ninth Circuit failed to address the concreteness inquiry, the Supreme Court remanded the case for reassessment in light of the guiding principles announced in Spokeo.

To be sure, Spokeo does not bode well for plaintiffs in a number of cases, particularly cybersecurity and data breach actions.  It is often difficult in those contexts to demonstrate a tangible harm because the stolen information may not have been used in a way that directly impacts the consumer.  By contrast, in most securities cases, plaintiffs have identified a tangible injury; i.e., a drop in stock price.  It is possible following Spokeo's rejection of a per se standing rule (based on a statutory violation) that defendants may use standing to force plaintiffs to articulate causation theories earlier on in the litigation or, even better, as a basis for dismissal. More realistically though, Spokeo will have minimal, if any, impact in securities cases because a concrete injury is central to the claims and/or defenses.

Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning

In Merrill Lynch, Pierce, Fenner & Smith Inc. v. Manning, the Supreme Court addressed the scope of Section 27 of the Exchange Act.  Plaintiffs there alleged that defendants' naked short selling of a specific stock resulted in the stock's decline.  Though plaintiffs brought only state law claims, their complaint repeatedly cited the Exchange Act's Regulation SHO, which governs short selling activities, as a basis for the state law violation.  The dispute before the Supreme Court centered on whether plaintiffs were required to bring their action in federal court.

Section 27 of the Exchange Act states that federal courts "shall have exclusive jurisdiction of violations of [the Exchange Act] . . . and of all suits . . . brought to enforce any liability or duty created by [the Exchange Act]."  Merrill Lynch claimed, based on this language, that exclusive jurisdiction rests with the federal courts in any "suit that either explicitly or implicitly asserts a breach of an Exchange Act duty" because such a suit "is 'brought to enforce' that duty even if the plaintiff seeks relief solely under state law."  The plaintiffs, on the other hand, claimed that a suit is "brought to enforce" under Section 27 only if it is brought directly under the Exchange Act itself.

The Supreme Court rejected both parties' proposed interpretations.  The Court held that the jurisdictional test under Section 27 is the same as the test under 28 U.S.C. § 1331 for deciding if a case "arises under" a federal law.  Accordingly, as the Court explained, federal jurisdiction will most often attach "when federal law creates the cause of action asserted" or "when the state-law claim 'necessarily raise[s] a stated federal issue, actually disputed and substantial, which a federal forum may entertain without disturbing any congressionally approved balance' of federal and state power."  Plaintiffs' claims did not meet either test.  The causes of actions they asserted were created by New Jersey law and the federal issue—whether the short selling activities in issue violated Regulation SHO—was not "necessarily raise[d]" by those claims.

Manning allows plaintiffs to invoke federal authority in support of their state law claims without risking the loss of their chosen state court forum.  Though Manning precludes defendants from removing certain securities-related claims brought in state court, the practical impact of the decision is unclear.  On the one hand, plaintiffs could perceive state courts as a more favorable forum for securities suits that may lead them to do their best to assert state law claims that do not permit removal under the standard articulated in Manning.  That is particularly so given the heightened pleading requirements for Exchange Act claims pursuant to the Private Securities Litigation Reform Act of 1995 ("PSLRA").  In fact, plaintiffs' efforts to avoid the PSLRA pleading requirements by filing in state court led Congress to enact the Securities Litigation Uniform Standards Act of 1998 ("SLUSA"), which permits removal to federal court of class actions asserting claims involving covered securities.  On the other hand, the number of situations where a state law claim necessarily raises a federal issue is not likely to be very high.  And many claims arising under state law, like the common law fraud and state RICO claims brought under New Jersey law in Manning, are often more onerous to plead and prove, or provide more limited relief, than claims under the federal securities laws, such as a Section 11 claim under the Securities Act of 1933.  Thus, while plaintiffs who choose to forgo federal securities law claims in favor of state law claims are now more assured of their ability to litigate in state court, Manning does not alter the substantive incentives in place that have for decades led plaintiffs asserting securities claims to bring them primarily under the federal securities laws (and thus in federal court).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
18 Sep 2018, Speaking Engagement, London, UK

Partner Christoph Brenner will attend as a panelist at the Annual Private Equity Europe Forum on the panel "Middle Market & Growth Investing" on Tuesday, September 18 at 3:45 p.m.

18 Sep 2018, Business Breakfast, London, UK

We are pleased to invite you to a breakfast briefing on the ground-breaking reforms of France’s bank monopoly laws.

20 Sep 2018, Seminar, Tokyo, Japan

Orrick's Total Access Japan Event Series provides entrepreneurs business, tactical, and legal education through complimentary panels and seminars and networking events. The next event will take place on Thursday, September 20 from 6:00 pm to 7:30 pm.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions