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Article: November 2014 Appellate Practice Update

November 20, 2014
Business Litigation Reports

Preview of the U.S. Supreme Court’s October 2014 Term. The Supreme Court has begun its October 2014 Term with a docket featuring more constitutional and criminal law cases than business cases, but a few business cases before the Court this Term have received significant attention. For example, in Young v. United Parcel Service (No. 12-1226), the Court will consider whether, and in what circumstances, the federal Pregnancy Discrimination Act requires an employer that provides work accommodations to non-pregnant employees to provide similar accommodations to pregnant employees. In Texas Department of Housing & Community Affairs v. Inclusive Communities Project (No. 13-1371), the Court will address whether so-called disparate impact claims can be brought under the Fair Housing Act, an issue of particular importance to the banking and insurance industries. Several other cases on the Court’s docket have received less attention but involve issues that could significantly affect business litigation.

On the class-action front, the Supreme Court granted certiorari in Dart Cherokee Basin Operating Co. LLC v. Owens (No. 13-719), to address the pleading standard for removal of a class action filed in state court to federal court under the Class Action Fairness Act (“CAFA”). The plaintiffs sought additional royalty payments for oil and gas leases in Kansas and filed suit in Kansas state court. The defendant removed to federal court, alleging that the amount in controversy was at least $8.2 million, in excess of the $5 million required for removal under CAFA. The district court remanded the case to state court on the ground that the company did not provide evidentiary support for the amount-in-controversy at the time of removal, relying upon the Tenth Circuit’s requirement of such evidence—apparently unique among the courts of appeals. The Tenth Circuit denied leave to appeal and, in a 4-4 split, denied a petition for rehearing en banc. The defendant filed a cert. petition and the Supreme Court granted review. Petitioner argues that the Tenth Circuit’s stringent evidentiary requirement at the removal-petition stage is inconsistent with Congress’s intent in enacting CAFA that a federal forum be broadly available for substantial class actions. Respondents argue that the removal statute requires proof of the amount in controversy by a preponderance of the evidence and a removing party cannot wait until the federal court’s jurisdiction is challenged to provide such evidence. Such a requirement may be difficult to satisfy in some cases, as a removing defendant will not always have the information necessary to calculate the amount in controversy. It is unclear, however, whether the Court will reach the merits, since, as the questioning showed at oral argument, the only matter before the Tenth Circuit was whether to permit an appeal of the remand order, not whether the remand order was correct.

A major patent case pending before the Court is Teva Pharmaceuticals USA, Inc., v. Sandoz, Inc. (No. 13-854), in which the Court will address the Federal Circuit’s practice of reviewing claim construction rulings de novo. Petitioner Teva prevailed in the district court against Respondent Sandoz’s argument that the term “average molecular weight” in a patent for a drug used to treat multiple sclerosis was indefinite. The district court relied upon expert testimony in reaching its claim construction. On appeal, the Federal Circuit reversed, holding on de novo review that the term was indefinite as used in the patent. Petitioner argues that claim construction is an issue of fact, not law, because it involves a determination of how someone in the relevant field would construe the patent and thus the Federal Circuit’s practice of reviewing claim construction rulings de novo is contrary to Federal Rule of Civil Procedure 52(b), which requires review of factual determinations for clear error. Respondents argue that, under Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996), interpretive issues in claim construction are legal questions and thus de novo review is proper, just as when a court considers legislative facts in interpreting a statute. Alternatively, Respondents contend that even if claim construction involves some factual determinations subject to clear-error review, facts comprising the patent history and prosecution—and expert testimony interpreting such facts—should remain subject to de novo review. As amici, including Google, argued, requiring the Federal Circuit to defer to district courts could not only result in forum shopping and a lack of uniformity, but also could deprive the public of notice of a patent’s scope.

Finally, in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund (13-435), the Court will consider whether liability under Section 11 of the Securities Act of 1933 may be based on a statement thought to be true at the time of its inclusion in the registration statement but later shown to be false. In this case, Omnicare, a provider of pharmacy-related services, offered 12.8 million shares of common stock for sale, stating in its SEC registration statement that it had complied with state and federal laws. Respondents purchased and then sold these securities and later questioned Omnicare’s compliance with Medicare regulations prohibiting kickbacks from pharmaceutical companies. The district court dismissed the claim, ruling that a party may be liable under Section 11 only if it did not subjectively believe the information in the registration statement at the time it was filed. The Sixth Circuit reversed in relevant part, holding that a plaintiff bringing a Section 11 claim need not prove the registrant knew the statements were false. Omnicare argues that this holding conflicts with Virginia Bankshares, Inc. v. Sandberg, 501 U.S. 1083 (1991), in which the Court held that a statement of belief or opinion is not actionable unless it was not genuinely held. Respondents contend,inter alia, that a statement of opinion, even if subjectively held, could mislead investors. Were the Supreme Court to adopt the Sixth Circuit’s interpretation, it would have significant practical effects for registration statements, imposing increased risk of liability for statements later deemed incorrect.