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March 2017: Appellate Litigation Update

Business Litigation Reports

The Effect of the New Presidency on Business Litigation in the United States Supreme Court. With Justice Scalia’s seat unfilled for a year since his death in 2016, and with President Obama’s nomination of Chief Judge Merrick Garland to that seat stymied in the Senate, President Trump’s election gave him the chance to make a consequential appointment to the Nation’s highest court. On January 31, 2017, the President nominated Judge Neil Gorsuch of the U.S. Court of Appeals for the Tenth Circuit to fill that vacancy, choosing him from a list of 21 candidates publicly disclosed during the campaign. Although much commentary has focused on the potential effect of a Gorsuch confirmation on social issues like immigration and abortion, a comparison between Judge Gorsuch’s and Justice Scalia’s records helps predict the impact the new appointment will likely have on business litigation in such areas as deference to administrative agencies, arbitration, and religious exemptions in employment law.

Chevron Deference. For over three decades, the doctrine of Chevron deference has directed courts to defer to Executive agencies’ interpretation of their own regulations in areas of their expertise. First authored by Justice Stevens in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the doctrine was expounded by Justice Scalia in cases like Auer v. Robbins, 519 U.S. 452 (1997). Later in his career, however, Justice Scalia became more skeptical of allowing “the person who promulgates a law to interpret it as well,” suggesting that this is inconsistent with the separation of powers. Talk Am., Inc. v. Mich. Bell Tel. Co., 564 U.S. 50 (2011) (Scalia, J., concurring). Justice Alito remarked after Justice Scalia’s death that he had been “rethinking the whole question of Chevron deference” out of concern that “agencies were exploiting Chevron to usurp Congress’ lawmaking authority.”

Judge Gorsuch’s record suggests that he may have a similar skepticism toward Chevron deference. In a notable recent concurrence, he stated that “[m]aybe the time has come to face the behemoth” of Chevron deference because such deference “permit[s] executive bureaucracies to swallow huge amounts of core judicial and legislative power and concentrate federal power in a way that seems more than a little difficult to square with the Constitution of the framers’ design.” Gutierrez-Brizuela v. Lynch, 834 F.3d 1142 (10th Cir. 2016) (Gorsuch, J., concurring). In response to criticism of this view, he replied, “We managed to live with the administrative state before Chevron. We could do it again.” Id. at 1158. Should Judge Gorsuch help move the Court toward retreat from Chevron deference, this development would encourage businesses to challenge more regulations, both offensively and defensively, with greater confidence that courts will not simply defer to agency interpretations in cases of regulatory ambiguity.

Legislative developments may well accelerate this trend. The House of Representatives recently passed a bill, the Regulatory Accountability Act of 2017, which provides that, “[i]f the reviewing court determines that a statutory or regulatory provision relevant to its decision contains a gap or ambiguity, the court shall not interpret that gap or ambiguity as an implicit delegation to the agency of legislative rule making authority” and also “shall not rely on such gap or ambiguity as a justification either for interpreting agency authority expansively or for deferring to the agency’s interpretation on the question of law.” H.R. 5, 115th Cong. § 202(1)(B) (as passed by the House, Jan. 11, 2017). If enacted, the Act will likely cabin Chevron deference even apart from any changing jurisprudence on the Court.

Arbitration. Justice Scalia authored a number of opinions for the Court strongly favoring arbitration and taking an expansive view of the Federal Arbitration Act (“FAA”). For example, he authored a 5-3 decision upholding arbitration clauses that waive the right to pursue class actions, American Express Co. v. Italian Colors Restaurant, 133 S. Ct. 2304 (2013), and a 5-4 decision holding that the FAA preempted a state-law rule deeming class-action waivers in arbitration clauses unconscionable, AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011). Arbitration-friendly rulings such as these have encouraged the increasing presence of arbitration clauses in a wide variety of consumer and other contracts.

Judge Gorsuch’s opinions suggest he will closely adhere to the statutory text of the FAA and the fundamental contractual principles underlying arbitration. For example, he authored an opinion reversing a denial of a motion to compel arbitration and holding that the parties were entitled to a swift trial on the issue of whether they in fact agreed to arbitrate their disputes, as the text of the FAA requires. Howard v. Ferrellgas Partners, L.P., 748 F.3d 975 (10th Cir. 2014). As he noted, “even under the FAA it remains a ‘fundamental principle’ that ‘arbitration is a matter of contract,’ not something to be foisted on the parties at all costs.” Where the parties do clearly evince the intent to arbitrate their disputes, however, he has expressed strong willingness to compel arbitration. See Ragab v. Howard, 841 F.3d 1134 (10th Cir. 2016) (Gorsuch, J., dissenting).

Religious Exemptions. A third area in which Judge Gorsuch’s views may affect business litigation is employers’ claims of exemption from regulation based on religious conviction. The Supreme Court decision in Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (2014), which upheld a religion-based challenge to a section of the Affordable Care Act that required closely held corporations to provide contraception coverage in employer-sponsored health plans, affirmed a decision in which Judge Gorsuch filed a concurring opinion, Hobby Lobby Stores, Inc. v. Sebelius, 723 F.3d 1114 (10th Cir. 2013) (en banc). Judge Gorsuch’s concurrence showed considerable deference to the decisions of corporate owners and directors to make their own determination about the degree of “complicity” they can undertake in conduct “their religion disallows.” It remains to be seen to what extent Justice Gorsuch would protect religious individuals from taking actions they deem incongruous with their faith when such individuals work at large corporations that are not closely held, or when religious conviction clashes with generally applicable antidiscrimination laws.